[U.S. judge: Cryptocurrency tokens are not securities in nature]
U.S. judges are clarifying the legal status of cryptocurrency tokens, with recent rulings emphasizing that the tokens themselves are not inherently securities. The rulings involve cases involving Ripple, Kraken and Binance, where the SEC sought to classify the tokens as securities.
In the SEC's case against Ripple, Judge Torres said that Ripple's digital token, XRP, is not inherently a security because it does not meet the standards of an investment contract as defined by the "Howey Test." This emphasizes the difference between the token itself and the token sale.
In the case against Payward Inc. (Kraken), Judge Orrick also emphasized this distinction. He noted that cryptocurrency tokens are not securities per se and that the SEC’s claims are legally invalid. This suggests that how a token is sold or promoted is critical to determining its legal status.
In the Binance case, Judge Jackson rejected the SEC’s “embodiment theory,” stating that tokens themselves are not securities, although they may be involved in investment contracts.
These rulings highlight the importance of context when applying securities laws to cryptocurrency tokens. While trading may be regulated, the tokens themselves do not automatically fall into the category of securities. This distinction is crucial to the debate over how cryptocurrencies should be regulated in the United States.
