Promoting XRP Can Hurt Ripple’s Argument That It Is Not a Security, Crypto Lawyer Says

Utilization of XRP -- this is the dilemma that Ripple is currently facing.

While the company is doing a great job of promoting its virtual token (XRP), wide adoption is still something of an aspiration for Ripple. Experts in the crypto market said that a cryptocurrency’s value will see a significant increase when businesses start using it for its intended purpose.

As of now, Ripple is sitting on $30 billion worth of XRP, which it plans to transfer to the hands of potential users. Investors who are currently holding the company’s digital token are using it only for speculative trading and nothing else, the NYTimes reported.

Ripple wants to change this. And of its approach to this endeavor is to create and pay companies that will use XRP to smoothen the transactions among different borders. However, there are risks attributed to the usage of Ripple’s digital token, with the Securities of Exchange Commission (SEC) posing the biggest one.

SEC Chairman Jay Clayton said that apart from Bitcoin and Ethereum, many cryptocurrencies operating in the virtual market will be considered securities. If XRP gets hit with this restriction, movement and trading will be more difficult, decreasing the chances of people using it as a means to move traditional fiat.

"A token, a digital asset, where I give you my money and you go off and make a venture, and in return for giving you my money I say 'you can get a return' that is a security and we regulate that," Clayton explained during a CNBC interview. "We regulate the offering of that security and regulate the trading of that security."

But Ripple officials are arguing that XRP is not a security since the cryptocurrency can still function even if the company is dissolved. To defend its position, Ripple hired former SEC chairwoman Mary Jo White to establish that this is indeed the case.

However, with the company promoting their tokens like it did on Ellen DeGeneres and Stephen Colbert’s shows, they’re actually proving the point of the SEC.

“Centralized control of a cryptocurrency is the central element to the SEC’s test of whether these tokens are securities,” said Lawson Baker, a lawyer and venture capitalist in the crypto market. “Any time you are putting XRP to work to defend it or buy goodwill, you are going to hurt your case that you aren’t a security.”

This is a conundrum right now for Ripple and its investors are now disgruntled thinking that the company somehow misled them on how its token operates.