Michael Didiuk, who used to worked in the Office of Compliance Inspections and Examinations in the SEC’s, as well as the Division of Investment Management and on the executive staff of two SEC Commissioners at the SEC’s headquarters in Washington, D.C, discussed the issue of XRP’s status, commenting that digital asset is a currency rather than a security.
“I don’t think XRP is a security, I think XRP is a currency. The reason why is […] Howey test… It’s a 4-factor test – Investment of money in a common enterprise with the expectation of profits based on the efforts of others.”
The Howey test mentioned was introduced by the Supreme Court in 1946 indicates if an asset is a security as it is assessed by four factors. The way that a security is determined are based on the factors of the investment of money, a common enterprise, expectation of profits, and the actions of a third party or promoter advertising that profit.
Didiuk is of the educated opinion that if any of the factors are not part of the asset, then it does not qualify as a security. His claim is that in the case of Ripple’s XRP, that even the company dissolved, the cryptocurrency would still exist. This puts it outside the scope concerning third party promoters.
Will this thought process affect the SEC’s official viewpoint on the cryptocurrency, Ripple’s chief executive officer Brad Garlinghouse spoke on the subject in September, stating:
“Security is something that represents ownership in a company that gives you rights to dividends, give you rights to governance, things like that. Ripple and XRP are two separate entities. When you buy XRP, that doesn’t give you any rights to the profits or ownership of Ripple the company.”