Are XRP and Ethereum both securities? Even SEC chair Gary Gensler doesn’t have an idea

Key Takeaways:

• Gary Gensler, the Chairman of the U.S. Securities and Exchange Commission (SEC) failed to answer to the distinction between Ethereum (ETH) and XRP.
• The lack of clarity has prolonged the SEC vs. Ripple lawsuit.
• Crypto community did not respond well to the interview.

YEREVAN (CoinChapter.com) — SEC Chairman Gary Gensler ducked on the opportunity of explaining whether Ethereum, like the overly-sued XRP, also comes under the category of securities.

The chief caught its tongue when a Fox anchor asked him during an interview Tuesday why the SEC treated Ethereum (ETH) as a currency but did not extend the same courtesy to XRP, a cryptocurrency currently facing scrutiny over being an alleged security token.

Background: SEC has filed a lawsuit against Ripple, a San Francisco-based blockchain payment company, and its top executives of fraud, including the illegal sales of $1.3 billion worth of XRP tokens during a so-called initial coin offering (ICO). The U.S. watchdog believes XRP is a security based on almost a century-old law called the “Howey Test.”

Gary Gensler cannot discuss ongoing cases

Fast forward to the recent interview, the host asked Mr. Gensler what distinction does the SEC put between Ethereum’s Ether (ETH) and Ripple’s XRP ICO. However, the chairman hesitated to answer directly, citing his inability to discuss ongoing lawsuits.

John E. Deaton, the founder of CryptoLaw blog and the representative of XRP holders’ interests in court, posted the interview, saying that the community “has just begun” asking questions.

Additionally, the host asked Mr. Gensler, “what is a currency, and what is a security?” The Chair gave a generic answer to the question.

It’s pretty straightforward. Raise money from the public as you say. You have a basic bargain of full and fair disclosure, and anti-fraud protections and you register with the government agency called the Securities and Exchange Commission.

said Mr. Gensler.

Also read: SEC Chair Gensler's speech raised eyebrows at Ripple.

However, calling the crypto law straightforward is quite a stretch. Moreover, crypto regulation has been a source of debate for years. For example, former SEC Commissioner Hester Peirce voiced this problem several times in 2019-2020. She called the agency to “fill the gap between regulation and decentralization” to facilitate innovation through a “new regulatory framework.”

Furthermore, Ethereum’s involvement in the SEC vs. Ripple case has been on the table since 2021.

Ethereum’s role in the SEC vs. Ripple lawsuit

Since the initial filing, both the prosecution and the defense have worked numerous angles around the flawed crypto laws. Furthermore, the defense cited what is now referred to as the “Hinman Speech” as one of the main shields against the SEC.

Notably, William Hinman is the former Director of the Corporation Finance Division at the SEC. In his June 2018 speech, he voiced his opinion on digital assets. Excerpts:

Putting aside the fundraising that accompanied the creation of Ether, based on my understanding of the present state of Ether, the Ethereum network and its decentralized structure, current offers and sales of Ether are not securities transactions.

said the former official.

Also read: SEC vs. Ripple: Motion to quash Hinman deposition transcript released.

Ripple lawyers aimed to depose Mr. Hinman on the matter, i.e., order his testimony before the court. Undoubtedly, the further investigation of a former SEC official’s stance could clarify the case. Moreover, Magistrate Judge Sarah Netburn ruled in Ripple’s favor, albeit citing the danger of creating a precedent questioning a high-ranking official.

What now?

Mr. Gensler’s reluctance to answer a straightforward question sent ripples across the crypto community. Moreover, another Fox Business investigator, Charles Gasparino, went as far as to call Mr. Gensler’s attempt to “punt on” the question as “pathetic.”

Did Ripple’s unregistered XRP really hurt anybody? NO! […] SEC should be concerned about the effects of the Fed’s money pumping on new asset classes. […] It was so pathetic that he punted on that.

said Mr. Gasparino

Also read: Judge orders SEC to answer interrogatories as Ripple CEO accuses U.S. securities regulator of favoring Ethereum.

The confusion around the SEC vs. Ripple case only proves the uncertainty of the law when it comes to the distinction between currencies and securities in the crypto-verse. Ripple’s General Counsel, Stuart Alderoty, commented on the agency’s indecisiveness, calling their rules opaque.

The truth is the SEC uses regulation by enforcement to create an uneven playing field and picks winners/losers according to opaque rules they make up as they go along.

said Mr. Alderoty.