[modeless]

> But Torres ruled Ripple's XRP sales on public cryptocurrency exchanges were not offers of securities under the law, because purchasers did not have a reasonable expectation of profit tied to Ripple's efforts.

> Those sales were "blind bid/ask transactions," she said, where the buyers "could not have known if their payments of money went to Ripple, or any other seller of XRP."

I bet this gets overturned on appeal. It makes no sense to me. Seems like a huge loophole if it stands. Maybe it's explained better in the actual ruling, anyone have a link? Of course you can count on Reuters to never link to important information.

[chrisco255]

Not really, unless XRP is a share of a company (it's not) and promises dividends (it doesn't), there's no expectation of profit by purchasers of XRP.

Profits from speculation is not the same as profits from business activities. People purchase everything from bar codes (yes, 11 digit bar codes are a commodity with limited supply), to trailers, to collectible video games, to oil and minerals, precious metals, art, antiques, etc etc all on speculation that they'll be worth more in the future.

[modeless]

Any speculative profit you hope to make on XRP is entirely reliant on the business of Ripple. They control and run and improve and promote the network, and without those efforts XRP would not have any hope of increasing in value at all. It's plain as day that people purchasing XRP rely on the efforts of Ripple the company for their expectation of profit, regardless of who they purchase the XRP from.

[dcolkitt]

Any speculative profit you hope to make on buying a limited edition Rolex is entirely reliant on the business of Rolex continuing to market the brand of Rolex.

But if you don't have a formal contractual relationship with Rolex SA, then it's quite simply not an investment contract.

[jakelazaroff]

> Any speculative profit you hope to make on buying a limited edition Rolex is entirely reliant on the business of Rolex continuing to market the brand of Rolex.

That is not at all true. Rolexes will continue to accrue value even (especially?) if the company goes out of business.

[scg]

To the extent that the Rolex brand has a certain inertia that will propel it further even after the company ceases to exist, that inertia can be attributed to company's previous marketing efforts.

Indeed, the brand may retain value for some time even if the company goes out of business, perhaps even for a very long time. Nevertheless, that doesn't negate the fact that ongoing marketing efforts can amplify the brand's value and momentum, and the brand's inertia will be even stronger should the company cease to exist.

Another way to look at this is to put yourself in the shoes of a prospective buyer in 1923. Wouldn't you say in that situation you rely on the company's continuing marketing efforts to further the value of the brand? At what point in the last 100 years do you stop relying on the company's efforts?

Also, Rolex can easily destroy brand value with ill-considered promotional campaigns, so you rely on the company to not mess it up.

[jakelazaroff]

I think if you have to go a full hundred years in the past to make this point, we can probably agree that for any prospective buyer today the speculative value of their limited edition watch doesn’t depend on the company continuing to exist during their lifetime.

[nonethewiser]

Maybe.

[unyttigfjelltol]

A Rolex is a tangible art object that also performs a useful function. If, on the other hand, the issuing company sold NFTs with no tangible, functional, or aesthetic component and somehow sold people on the idea Rolex the company was going to pump these otherwise useless bits and bytes to the moon, then you're actually talking about something analogous to crypto.

[dcolkitt]

There's literally nothing in existing law that identifies tangibility as a specific criteria for what constitutes a security and what constitutes a commodity. In fact both the CFTC and SEC are specifically on record as saying Bitcoin constitutes a commodity. And obviously Bitcoin is as intangible as it gets.

[unyttigfjelltol]

The Howey test's 4th prong refers to the value being derived from the work of others. When we're talking about a "commodity" that is intangible with no real-world application, function or value, respectfully those attributes are suggestive that the value derives from the "work of others." Maybe you and I and the SEC don't necessarily know the scope of the enterprise, but useless bits and bytes don't generally acquire value spontaneously so if one of them like ... XRP ... suddenly goes to the moon ... it certainly is suggestive because there's no other reasonable explanation.

[mrguyorama]

The thought experiment IMO should be simple: How valuable is an XRP token without Ripple as a company?

[DennisP]

The judge referenced the Howey case, saying that just because you have an investment contract involving an orange grove, that doesn't mean the orange grove itself is a security. A security is a contract, not just anything that people trade around in a speculative way.

William Hinman of the SEC said much the same thing in 2018: https://www.sec.gov/news/speech/speech-hinman-061418

[yata69420]

This is pretty obviously the reasonable take.

> A security is a contract, not just anything that people trade around in a speculative way.

The scary thing IMO is that I think if you had enough big money trading bottlecaps or baseball cards, you'd quickly find them being considered a security.

But words have to mean something. Things can't just be a "security" because they make the government feel insecure.

[DennisP]

Enormous money trades soybeans but they still aren't securities.

[pcthrowaway]

I wonder if this will have an impact on non-native tokens (which are implemented with smart contracts)

[otoburb]

>>Maybe it's explained better in the actual ruling, anyone have a link?

The docket[1] has the ruling[2], but there's very little additional detail provided beyond the focus on "blind transactions" to invalidate one of the Howey prongs[3].

As an aside, thank goodness for Court Listener and the RECAP/PACER archive!

[1] https://www.courtlistener.com/docket/19857399/securities-and...

[2] https://www.courtlistener.com/docket/19857399/874/securities...

[3] https://www.sec.gov/corpfin/framework-investment-contract-an...