In a tweet yesterday, Ripple’s Chief Technology Officer, David “JoelKatz” Schwartz, navigates the complex terrain of U.S. securities law, specifically examining its impact on cryptocurrency investments. Schwartz’s keen insights dissect the challenges posed by the inclusion of “investment contracts” within the securities classification, echoing themes rooted in the landmark Howey case.
The Howey test, which originally stipulated that profits should come “solely” from others’ efforts, has undergone evolution in response to subsequent court decisions. Schwartz underscores the test’s flexible nature, emphasizing that even clearly defined investment contracts can be influenced by market forces.
Provocatively questioning why certain assets, such as orange groves, were classified as investment contracts in Howey, while artworks or collectibles meeting Howey’s elements escaped such categorization, Schwartz emphasizes securities laws’ core purpose—to thwart fraud in soliciting investment funds. He argues that for an investment to be a contract, there must be a potential future set of facts constituting fraud against investors.
I've talked a little bit about US securities law, and I'm going to do that a little bit more. As most of you know, the primary argument that some tokens are securities comes from the inclusion of "investment contracts" in the list of things that are securities. The Supreme Court…
— David "JoelKatz" Schwartz (@JoelKatz) November 28, 2023
Drawing from the SEC v. Joiner case, Schwartz establishes that the nature of future obligations between buyer and seller, linked to the seller’s performance benefiting the buyer, defines an investment contract. This exploration raises pivotal questions about applying securities laws to emerging assets in the dynamic cryptocurrency landscape.
Incorporating Ripple XRP into this legal analysis, the cryptocurrency stands at US$0.6138, reflecting a +1.14% change in the last 24 hours. With a circulating supply of 53.82 billion XRP and a 24-hour trading volume of $1.16 billion, XRP’s current position is -3.57% from its 7-day high and 5.43% from its 7-day low, adding an additional layer to the correlation between legal intricacies and market fluctuations.
