Ethereum, Ripple tokens could be securities, says former CFTC head

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Two of the world’s largest cryptocurrencies could, in fact, be securities, according to the former chief of the U.S. Commodity Futures Trading Commission (CFTC).

Major cryptocurrencies like Ether (ETH) and Ripple (XRP) still operate in a largely unregulated environment, and according to former CFTC chairman Gary Gensler, they could yet still run into difficulties with U.S. regulators.

The comments are significant since securities are regulated in the U.S., as with most developed economies worldwide.

In comments delivered at an MIT blockchain event, Gensler confirmed his personal view that ETH and in particular Ripple’s XRP token, should be classified as securities. Citing the Howey Test, which can be used to decide when an investment is a security, Gensler told delegates that both Ethereum and Ripple tokens could be “operating outside of U.S. laws.”

Classification as a security brings a new level of scrutiny for any financial instrument, with specific regulation under the watch of the Securities and Exchange Commission a legal requirement before any security can be sold.

The specific features of ETH and XRP, including the fact they were launched via initial coin offerings (ICOs), means they fall within the parameters of the Howey Test, and should be regulated as securities, according to Gensler’s argument.

However, he highlighted that Bitcoin (BCH) would not be classed as a security on the same basis, because it was not launched with an ICO.

If the comments give any insight into the attitude of U.S. regulators, there could well be ramifications for those crypto tokens legally deemed to be securities, with severe penalties for those responsible for any breach in securities laws.

In response, a statement from Ripple dismissed the idea that their token should be regulated as a form of security.

In an email to Bloomberg, the Ripple spokesperson said the company doesn’t believe XRP should be classified as security since it “does not give its owners an interest or stake in Ripple and they are not paid dividends.”

“XRP exists independent of Ripple, was created before the company and will exist after it. Ripple has always promoted XRP as a useful digital asset for enterprise payments because it’s faster, more scalable and more inexpensive than other digital assets. That utility exists completely separate from Ripple,” according to Ripple’s statement.

The Ethereum Foundation has yet to respond to Gensler’s statement.