The figure above lists the crypto assets under each rating category as identified in the second Steemit article. We identify in bold the subset of crypto assets that were later included in an enforcement action by the CFTC or the SEC. Bitcoin, Tether, Ethereum, DogeCoin, and Litecoin were included in enforcement actions by the CFTC, which oversees commodities and derivatives. Each had been classified by the Steemit article as very unlikely to be deemed securities.
Ripple and BitConnect were included in enforcement actions by the SEC, which oversees securities. While BitConnect was given an unclear rating by the second Steemit article, Ripple received a very unlikely chance of being classified as a security by the SEC. Regarding BitConnect, the Steemit article stated:
It’s somewhat difficult to find information on how this coin works. We have not been able to find a white paper describing it. We suspect it would be considered a security as its purpose is to earn interest by paying it back to BCC developers, but it is very unclear.
Regarding Ripple, the Steemit article said, “At this time there is no expectation of profit (dividends or payouts) expected for Ripple holders. It is used as a value holder for transactions in the Ripple ecosystem.”
Since the DAO report release, the CFTC and SEC have conducted numerous enforcement actions. The agencies’ decisions on whether particular crypto assets were securities have been generally consistent with the market price reaction of the crypto assets following the DAO report with the notable exception of Ripple. Following the DAO decision, the market classified Ripple as “very unlikely” to be considered a security, and its price movement was in line with other crypto assets that were not considered securities using the same market classification, including Bitcoin and Ethereum. Nevertheless, on December 22, 2020, the SEC charged Ripple with conducting a $1.3 billion unregistered securities offering. The SEC argued there was no significant use for Ripple other than as an investment. The agency argued that the first potential use Ripple claimed for the token—to serve as a universal digital asset for banks to transfer money—never materialized. The SEC further argued that to date, the only product that permits Ripple use for any purpose is on-demand liquidity (“ODL”). ODL allows for cross-border payments to be settled in seconds, not days. The SEC claimed, however, that ODL has gained little traction and that “ODL transactions comprised no more than 1.6% of XRP’s trading volume during any one quarter.” The SEC has repeatedly clarified that “merely calling a token a ‘utility’ token or structuring it to provide some utility does not prevent the token from being a security.” Both Ripple and the SEC submitted reply briefs in the ongoing lawsuit on December 2, 2022, and a court decision nears regarding whether Ripple can avoid the lawsuit.
As more information is disclosed about the various crypto assets, one can examine the price reaction to regulatory and litigation rulings to evaluate the likelihood that assets will be classified as securities, as reflected by the views of market participants.