Security or Commodity?

What is $XRP

Yesterday I saw Bitnomial Exchange filed suit against the Securities and Exchange Commission. I am an investor in Bitnomial. I didn’t know the suit was coming since I am not a material investor, and found out on X yesterday evening. I haven’t spoken with anyone from Bitnomial about this. This blog is my judgment via my experiences.

The SEC is trying to stop Bitnomial from listing $XRP futures. $XRP is a digital medium of exchange. It was created by the company Ripple years ago and has a multi-billion dollar market cap. $XRP is not any different from a Japanese Yen or US Dollar, except it was made by a private company. It has it’s own ledger which is transparent. You can build things on top of $XRP, but that’s true of all software.

Gary Gensler is chair of the SEC and if Kamala Harris is elected, he is likely to be head of the US Treasury. After a career at Goldman, he continues to fail upward in government. He headed the CFTC before the SEC. He was horrible for the futures industry as a CFTC head. He’s been horrible for the crypto industry and innovation as the SEC head. He is the reason three banks failed as he deliberately crushed the off-and-on ramps from fiat to crypto.

If you are involved in the crypto industry, you must do all you can to avoid any more intervention by people like Gensler. That means you cannot vote for Kamala. Trump has come out in favor of crypto. He will appoint people who will move the ball forward, not try and kill it.

This is a blatant and brazen attempt by Gensler to expand the SEC's turf. I hope that other futures exchanges will join the fight, but they probably do not want to poke the bear. They have a vested interest long-term in joining the fight and maybe filing friend-of-the-court briefs outlining why this is regulatory overreach by the SEC.

CEO of Bitnomial Luke Hoersten posted this on his Linked In,

Unlike other US businesses in litigation with the SEC, Bitnomial Exchange, LLC has not been accused of wrongdoing. As such, we are in a unique position to push for a court decision on the securities or commodities classification of XRP futures following the landmark determination as a non-security in the Southern District of New York case. Establishing this precedent is not just about XRP; it’s about all digital assets. Bitnomial Exchange, LLC self-certified the contract under the Commodity Exchange Act (“CEA”) and the SEC communicated, despite their loss in court, that they still believe XRP to be a security. The SEC is certainly entitled to its position, which is why we are seeking a formal declaration from a court.

Regulatory agencies routinely try to expand their regulatory turf. Their driving economic incentive is power, not money. Fortunately, the Supreme Court recently clipped the collective regulatory wings when it overturned the Chevron doctrine. One of the huge drags on life in the US and the economy is the magnificent size and breadth of the unelected bureaucratic regulatory state.

The dispute is kind of boring but it’s important because it will set boundaries. The SEC contends that the $XRP crypto token is a “security”. Bitnomial contends that it is not, and is a commodity. Gensler has thought he could pick on a weak rival to expand his turf.

The fact is, $XRP is a commodity. It’s a medium of exchange tied to the US dollar. The US dollar is a commodity. It is used to transact business on the Ripple platform. There are no dividends paid, nor are there customary equity voting rights that go with owning the security.

When we were invested in OpenFinance.io, the company floated a commodity token. The company spent millions in legal fees to go through the SEC regulatory hoops to be able to list and trade that token, which was a “security token”. It represented something other than the token, and it could have dividends tied to it.

The company made it through the entire SEC process and once the SEC realized the full ramifications of what it just approved, immediately banned the company from trading the security tokens. It was the only company to get that far at the time and we sold the company to another company. We and our investors didn’t lose any money, but we didn’t make any either.

What was informative for me was a window into the process of jumping through the SEC hoops. They were interminable, full of stupid and meaningless red tape, and expensive. I am sure there might be SEC-experienced attorneys who could enlighten you with examples of how backward that agency is when it comes to innovation.

I know that plenty of venture funds are invested in crypto. I remember the Marc Andreessen/Ben Horowitz podcast about “little tech”. Bitnomial is “little tech”. It would be nice if venture funds and venture capitalists who have a big pulpit via their blogs stepped up and commented about this case. But, so many of them hate Trump so much that they won’t be able to see their way clear to do that. That’s too bad they cannot be objective.

Let’s hope Bitnomial crushes the SEC. It will be good for America and good for innovation.