• A recent study has revealed that the court ruling has created a confusing situation for Ripple’s XRP.
• It has become possible that XRP is not a security in public sales but has become one in private sales to institutions.
• Regulatory bodies have struggled to define tokens issued during fundraising as securities.

A recent research paper by the European Corporate Governance Institute (ECGI) dives into the complex world of blockchain startup fundraising and the ever-changing regulatory landscape surrounding it.  The study, titled “Corporate Governance Meets Data and Technology,” explores the various methods startups use to raise capital, such as ICOs, IEOs, STOs.

Court Ruling Splits XRP Legal Status

The paper, authored by Wei Jiang and Tao Li from Emory University and the University of Florida, respectively, highlights a key legal development for Ripple (XRP), the cryptocurrency associated with Ripple Labs. The authors reference a U.S. federal court ruling from July 13, 2023, which clarified the legal status of XRP. 

The court determined that XRP is not considered a security when sold publicly on exchanges. However, the ruling adds a layer of complexity by classifying XRP as a security when sold directly to institutional investors.

This distinction between XRP’s public and private sales underscores the ongoing regulatory challenges associated with token offerings. Regulatory bodies, like the U.S. Securities and Exchange Commission (SEC), are grappling with classifying tokens issued through these fundraising mechanisms. 

The central question revolves around whether certain tokens qualify as securities, subjecting them to stricter regulations. The SEC’s lawsuit against Ripple Labs, which hinged on this very classification, is a prominent example of this debate.

Study Offers Clues, But Questions Remain

Legal expert Bill Morgan, commenting on the ECGI study, emphasizes that XRP is not inherently a security. However, Morgan cautions that XRP could be involved in transactions or schemes that fall under securities regulations. 

This distinction is crucial for understanding how Ripple and similar cryptocurrencies navigate the regulatory landscape surrounding token offerings. The ECGI study and expert commentary underscore the need for ongoing regulatory clarity and compliance within cryptocurrency. 

While the court ruling clarifies public sales of XRP, the ongoing scrutiny highlights the complexities stakeholders face. As cryptocurrency evolves, navigating these regulatory frameworks remains essential to ensure transparency and legal adherence.

On the Flipside

• The court ruling offers some clarity for XRP, but the broader regulatory landscape for token offerings remains unsettled, creating hurdles for innovation.
• The regulatory landscape is constantly changing, so the study’s findings and the court ruling might need to be revisited.

Why This Matters

This court ruling creates a confusing precedent: XRP is a security for some sales but not others. This inconsistency reflects the broader challenge of regulating crypto fundraising.  The lack of clear guidelines creates uncertainty for issuers and investors, potentially hindering innovation and mainstream adoption of cryptocurrency.

To learn more about the factors affecting the approval of an XRP ETF, read here:

Ether ETFs Will Set the Stage for XRP ETFs: Experts Weigh In

To learn more about the technical indicators suggesting a bullish breakout for XRP, read here:

Why XRP’s Price Remains Motionless Despite Bullish Sentiment