Crypto
Ripple v. SEC: Why the crypto industry may have celebrated too early
Last month’s decision by a court in the U.S. District Court for the Southern District of New York on the SEC’s claims against Ripple Labs has been generally hailed as a victory for the token issuers and exchanges. However, the actual impact of the decision on the future of cryptocurrencies in the U.S. is not so clear.
By highlighting the principle that the SEC’s jurisdiction over digital assets depends on the nature of the offer or sale of such assets rather than the intrinsic qualities of the asset itself, the decision is indeed a positive development for the industry. But other favorable aspects of the decision for Ripple seem ripe for a reversal on appeal. Ironically, that could strengthen the SEC’s hand going forward.
An unusual decision
The SEC’s claims against Ripple hinged on whether Ripple’s distribution of its cryptocurrency, XRP, was a “security” for the purposes of the Securities Act. More specifically, the question was whether these transactions satisfied a three-pronged test for an “investment-contract” security devised by the Supreme Court over seven decades ago in SEC v. W.J. Howey Co.
Under the Howey test, transactions involving the (1) investment of money in (2) a common enterprise with (3) an expectation of profit from the efforts of others, are securities. If these transactions were securities, Ripple was required to make certain public disclosures (which it concededly did not make), along with observing other compliance obligations.
The court concluded that certain negotiated sales of large blocks of XRP institutional purchasers satisfied the Howey test (sales the court called “institutional sales”)–but that anonymous sales by Ripple on cryptocurrency exchanges (so-called “programmatic sales”) did not, nor did Ripple’s transfer or XRP to vendors or employees in exchange for services (termed “other distributions”). Thus, the SEC prevailed on its claim as to the institutional sales, but not as to other types of distributions of XRP. The SEC’s related claims against Ripple’s founder, former CEO, and current chairman of the board Christian Larson and the former COO and current CEO, Bradley Garlinghouse over Ripple’s institutional sales will continue to trial. Larson and Garlinghouse deny any wrongdoing.
The most striking feature of the decision is that the court applied the “expectation” element of the “expectation of profit from the efforts of others” differently to different groups of purchasers.
Normally, courts focus their analysis of this prong of the Howey test on whether a person with knowledge of all public information about the role of the people offering an investment (typically called “promoters”) in the future success of the investment would expect that the promoters’ ongoing efforts are key to profits. Instead, the court focused on the actual information available to different sets of purchasers. The court reasoned that since the institutional purchasers knew they were buying XRP from Ripple, and were provided marketing materials from Ripple, they would expect the value of the XRP to be affected by Ripple’s efforts. By contrast, the programmatic buyers’ assumed relative ignorance of Ripple’s role in developing, marketing, and distributing XRP led the court to conclude that these buyers would not reasonably expect Ripple’s activities to affect XRP.
As for the other distributions, the court concluded these transfers lacked the necessary “investment of money” to satisfy the Howey test. The ruling is in contrast to the SEC’s longstanding position that nearly any benefit to the promoter has value and can be considered an investment of money.
What it means for the industry
The cryptocurrency industry has long advocated for a more transaction-focused approach to Howey. By distinguishing among groups of XRP purchasers, the Ripple decision delivers one.
Animating the industry’s goal in this respect is a desire to exclude secondary market transactions from the SEC’s jurisdiction, among other motivations. The question is existential for many market intermediaries, particularly cryptocurrency exchanges, whose subjection to SEC jurisdiction turns on whether they deal, broker, clear, or operate an exchange for trading securities.
Here, the Ripple decision delivers for the industry again. By holding that knowing one’s privity with the promoter is key to the expectation of profit from the efforts of others, the court comes close to carving out secondary market transactions per se, and even (as was the case with the programmatic sales) immunizes anonymized direct sales from promoters like Ripple.
Similarly, if it stands, the court’s formalistic interpretation of the investment-of-money prong of Howey would seem to open the door to more extensive use of digital assets in employee compensation, developer grants, and promotional giveaways (eg. airdrops, a popular if controversial tool for the distribution of crypto tokens).
How an appeal could make things worse
Before the cryptocurrency industry spends too heavily on champagne, it should remember that the Ripple decision is not a precedential opinion, nor is it necessarily the last word on the case. The SEC has the right to appeal–and is expected to use it.
Beyond its novelty, the court’s focus on XRP purchasers’ specific access to information about Ripple yields a perverse result. The sale of XRP to the most sophisticated investors, who by virtue of the bespoke nature of the transaction were privy to the most information about how Ripple’s activities may affect the value of XRP, is a security, subject to the investor protections and restrictions mandated by the securities laws. Whereas, the offer and sale of XRP to retail investors, who dealt with Ripple in anonymous transactions through exchanges and otherwise, is not a security and does not require disclosure or offer those same investor protections. Those people who already have the most information are given a right to more, while those people with the least information go without.
The court’s ruling on the “other distributions” seems on similarly shaky ground. In addition to running up against precedent that “sales” of securities need not involve the transfer of tangible items of value, this interpretation appears to open loopholes in Howey for various non-traditional forms of financing. Indeed, it is even difficult to square with the established concept of “sweat equity.”
Should the Second Circuit Court of Appeals reverse either or both of the industry‑favorable elements of the Ripple decision, the SEC will be finally armed with precedential case law applying Howey to a cryptocurrency–a weapon of no small importance for its fights with the cryptocurrency exchanges Coinbase and Binance over whether the tokens they listed are securities.
Longer-term effects and benefits
Even if significant pieces of the Ripple decision are reversed on appeal, one aspect of the case is likely to provide lasting benefit to the cryptocurrency industry. The court was almost certainly correct to focus its Howey analysis on the transactions in question, rather than the underlying assets. Courts in the past have occasionally missed this subtle distinction–most likely because other parts of the definition of the term “security” in the Securities Act are tied to financial instruments themselves, such as stocks and bonds. But Howey addresses investment contracts, which is why its test focuses on the parties’ actions and expectations, which are driven by the facts and circumstances surrounding the relevant transactions.
Although the court’s distinction between groups of purchasers’ access to information is unlikely to survive appeal as meaningful for Howey test purposes, other purchaser differences might one day be dispositive. Most obviously, courts could draw lines between groups of purchasers over time. As decentralized token projects progress, it is plausible to imagine that the expected effect of the efforts of promoters on profits will change. These efforts might be relevant to profits for an early group of purchasers, but not for a later group after control of the project becomes fully decentralized. Similarly, as such projects mature, the motive for buying a cryptocurrency may change. A reasonable early purchaser might be drawn to financial returns (investment profits) while the primary motive for a later purchaser might be to use the token within a particular network or protocol (consumption).
If future courts take account of these distinctions between purchasers, defendants may have the Ripple court’s attention to differentiated transactional details to thank.
Peter Fox is a partner at Scoolidge, Peters, Russotti & Fox LLP.
The opinions expressed in Fortune.com commentary pieces are solely the views of their authors and do not necessarily reflect the opinions and beliefs of Fortune.
A total of $2.2bn (£1.76bn) in cryptocurrencies has been stolen this year, with North Korean hackers accounting for more than half that figure, according to a new study.
Research firm Chainalysis says hackers affiliated with the reclusive state stole $1.3bn of digital currencies – more than double last year’s haul.
Some of the thefts appear to be linked to North Korean hackers posing as remote IT workers to infiltrate crypto and other technology firms, the report says.
It comes as the price of bitcoin has more than doubled this year as incoming US president Donald Trump is expected to be more crypto-friendly than his predecessor, Joe Biden.
Overall, the amount of cryptocurrency stolen by hackers in 2024 increased by 21% from last year but it was still below the levels recorded in 2021 and 2022, the report said.
“The rise in stolen crypto in 2024 underscores the need for the industry to address an increasingly complex and evolving threat landscape.”
It said the majority of crypto stolen this year was due to compromised private keys – which are used to control access to users’ assets on crypto platforms.
“Given that centralised exchanges manage substantial amounts of user funds, the impact of a private key compromise can be devastating”, the study added.
Some of the most significant incidents this year included the theft of the equivalent of $300m in bitcoin from Japanese cryptocurrency exchange, DMM Bitcoin, and the loss of nearly $235m from WazirX, an India-based crypto exchange.
The US government has said the North Korean regime resorts to cryptocurrency theft and other forms of cybercrime to circumvent international sanctions and raise money.
Last week, a federal court in St Louis indicted 14 North Koreans for allegedly being part of a long-running conspiracy aimed at extorting funds from US companies and funnelling money to Pyongyang’s weapons programmes.
The US State Department also announced that it would offer a reward of up to $5m for anyone who could provide more information about the alleged scheme.
Cryptocurrency wallets are no longer a niche tool for tech enthusiasts, they’re quickly becoming a must-have for businesses looking to adapt and grow.
These digital wallets allow companies to store, manage, and accept cryptocurrencies securely, offering a host of advantages for businesses worldwide.
With the rise of blockchain technology, tools like a crypto wallet for your business are helping organizations unlock new opportunities for speed, security, and global expansion.
In this article, we’ll break down how cryptocurrency wallets can transform businesses, highlighting their features, benefits, and real-world applications.
Key Features of Cryptocurrency Wallets for Businesses
Security:
Cryptocurrency wallets use advanced blockchain technology to protect against fraud, hacking, and data breaches.
Each transaction is recorded on an immutable ledger, ensuring transparency and minimizing the risk of manipulation.
For businesses, this translates to a higher level of trust and reduced exposure to fraud.
Efficiency:
Speed is everything in today’s business world.
With crypto wallets, transactions are processed much faster compared to traditional banking methods.
No waiting days for wire transfers, payments are completed in minutes, whether it’s across town or across the globe.
Global Access:
Unlike traditional payment methods, cryptocurrency wallets aren’t restricted by borders or currency conversions.
Businesses can seamlessly operate in international markets, offering customers an easy and affordable way to pay without dealing with exchange rates or high transaction fees.
Opportunities Provided by Crypto Wallets
The growing popularity of cryptocurrency isn’t just hype, it’s backed by numbers.
As of 2024, approximately 562 million people own some type of cryptocurrency, which represents about 6.8% of the global population, according to a recent survey by Triple A.
For businesses, these millions of crypto wallets unlock a wide range of opportunities:
Expanding Customer Base: Tech-savvy customers and international audiences are increasingly turning to cryptocurrencies for their purchases.
Businesses that accept crypto payments can attract a wider audience, including customers in regions with limited access to traditional banking systems.
Cost Savings: Traditional payment processors and credit card networks come with hefty transaction fees.
Cryptocurrency payments, on the other hand, have significantly lower fees, especially for international transactions.
Over time, these savings can make a real impact on a company’s bottom line.
Revenue Growth: By accepting cryptocurrencies, businesses can tap into a growing market segment and create new revenue streams.
Whether it’s Bitcoin, Ethereum, or stablecoins, crypto acceptance positions businesses as forward-thinking and innovative.
Financial Independence: Crypto wallets allow businesses to operate independently of banks and intermediaries.
Companies gain full control over their finances and can send or receive payments anytime, anywhere, without relying on third-party approval.
Use Cases for Businesses
Cryptocurrency wallets are already transforming industries, helping businesses reduce costs, improve efficiency, and attract new customers.
Here are a few specific examples:
- E-commerce and Online Services: Online retailers are increasingly adopting crypto wallets to reach global customers and reduce transaction fees. By accepting cryptocurrencies, e-commerce platforms eliminate middlemen and offer faster, cheaper payments.
- Gaming and Entertainment: The gaming industry has embraced cryptocurrency as a payment method for in-game purchases, subscriptions, and digital goods. Crypto wallets offer gamers a seamless way to pay while enabling businesses to attract a tech-savvy audience.
- Forex and Trading Platforms: Crypto wallets are a natural fit for forex and trading businesses, allowing them to accept and process digital assets quickly and securely. This improves liquidity and gives traders more flexibility with their investments.
Real-World Case Study:
In 2014, large ecommerce retail Overstock.com started accepting crypto payments and they then reported that 5.6% of all their sales for the following year were attributed to crypto.
By removing transaction barriers and offering a flexible payment option, they successfully expanded their global reach and boosted sales.
Conclusion
Cryptocurrency wallets are opening up new opportunities for businesses to grow, adapt, and thrive in a digital-first world.
From enhanced security and cost savings to faster transactions and global accessibility, the benefits are hard to ignore.
By adopting a reliable crypto wallet for your business, you’re not just staying ahead of the curve, you’re setting your company up for long-term success.
With crypto adoption on the rise, there’s never been a better time to explore the future of payments.
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DUBLIN, Ohio, Dec. 19, 2024 (GLOBE NEWSWIRE) — reAlpha Tech Corp. (“reAlpha” or the “Company”) (Nasdaq: AIRE), a real estate technology company developing and commercializing artificial intelligence (“AI”) technologies, today announced that its board of directors has approved an investment policy for the purchase of cryptocurrencies and to adopt Bitcoin, Ethereum and Solana (collectively, the “cryptocurrencies”) as reAlpha’s primary treasury reserve assets. The Company plans to allocate up to 25% of its cash in excess of its estimated 6-month period operating expenses, if any, towards cryptocurrency purchases, subject to market conditions and actual operating needs of the Company, reflecting the Company’s commitment to innovative capital management and diversification strategies.
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Cryptocurrencies are recognized as a decentralized store of value, and the decision to adopt cryptocurrencies as reAlpha’s primary treasury reserve assets is part of its strategy to diversify its treasury holdings, which is currently only comprised of cash.
“This board-approved initiative demonstrates our forward-looking approach to capital management,” said Giri Devanur, Chief Executive Officer of reAlpha. “By adopting this new investment policy and allocating a portion of our excess cash to cryptocurrencies after accounting for our operating needs and acquisition opportunities, we aim to diversify our treasury holdings and position reAlpha to adapt to changing market conditions and growing global acceptance of cryptocurrencies, while retaining the flexibility to execute our growth initiatives.”
The cryptocurrencies are expected to serve as reAlpha’s primary treasury reserve assets on an ongoing basis, subject to market conditions and the anticipated cash needs of reAlpha. reAlpha will monitor its future cryptocurrencies holdings closely to adjust its allocation strategy in response to market conditions or evolving regulatory frameworks, if needed.
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For more details regarding reAlpha’s cryptocurrency treasury strategy and investment policy, please refer to the Current Report on Form 8-K to be filed with the U.S. Securities and Exchange Commission (the “SEC”) and supplemental disclosures included therein.
About reAlpha Tech Corp.
reAlpha Tech Corp. (Nasdaq: AIRE) is a real estate technology company developing an end-to-end commission-free homebuying platform. Utilizing the power of AI and an acquisition-led growth strategy, reAlpha’s goal is to offer a more affordable, streamlined experience for those on the journey to homeownership. For more information, visit www.reAlpha.com.
About the reAlpha Platform
reAlpha (previously called “Claire”), announced on April 24, 2024, is reAlpha’s generative AI-powered, commission-free, homebuying platform. The tagline: No fees. Just keys.™ – reflects reAlpha’s dedication to eliminating traditional barriers and making homebuying more accessible and transparent.
reAlpha’s introduction aligns with major shifts in the real estate sector after the National Association of Realtors agreed to settle certain lawsuits upon being found to have violated antitrust laws, resulting in inflated fees paid to buy-side agents. This development is expected to result in the end of the standard six percent sales commission, which equates to approximately $100 billion in realtor fees paid annually. The reAlpha platform offers a cost-free alternative for homebuyers by utilizing an AI-driven workflow that assists them through the homebuying process.
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Homebuyers using the reAlpha platform’s conversational interface will be able to interact with Claire, reAlpha’s AI buyer’s agent, to guide them through every step of their homebuying journey, from property search to closing the deal. By offering support 24/7, Claire is poised to make the homebuying process more efficient, enjoyable, and cost-efficient. Claire matches buyers with their dream homes using over 400 data attributes and provides insights into market trends and property values. Additionally, Claire can assist with questions, booking property tours, submitting offers, and negotiations.
Currently, the reAlpha platform is under limited availability for homebuyers located in 20 counties in Florida, but reAlpha is actively seeking new MLS and brokerage licenses that will enable expansion into more U.S. states.
For more information, please visit www.reAlpha.com.
Forward-Looking Statements
The information in this press release includes “forward-looking statements”. Forward-looking statements include, among other things, statements about reAlpha’s adoption of its cryptocurrency treasury strategy and investment policy; the anticipated benefits of the cryptocurrency treasury strategy and investment policy; reAlpha’s ability to anticipate the future needs of the short-term rental market; future trends in the real estate, technology and artificial intelligence industries, generally; and reAlpha’s future growth strategy and growth rate. In some cases, you can identify forward-looking statements by terminology such as “may”, “should”, “could”, “might”, “plan”, “possible”, “project”, “strive”, “budget”, “forecast”, “expect”, “intend”, “will”, “estimate”, “anticipate”, “believe”, “predict”, “potential” or “continue”, or the negatives of these terms or variations of them or similar terminology. Factors that may cause actual results to differ materially from current expectations include, but are not limited to: risks inherent with investing in cryptocurrencies, including related price volatility, cybersecurity threats, potential loss of investment, regulatory oversight and others; reAlpha’s ability to timely respond to any changes in its operating needs, market conditions or regulatory framework related to digital assets, including cryptocurrencies; risks relating to implementing a new treasury strategy and investment policy; reAlpha’s limited cash position and ability to have excess cash in order to advance its cryptocurrency treasury strategy and investment policy; reAlpha’s ability to accurately estimate its operating expenses for any subsequent 6-month period in order to advance its cryptocurrency treasury strategy and investment policy; reAlpha’s limited operating history and that reAlpha has not yet fully developed its AI-based technologies; reAlpha’s ability to commercialize its developing AI-based technologies; whether reAlpha’s technology and products will be accepted and adopted by its customers and intended users; reAlpha’s ability to integrate the business of its acquired companies into its existing business and the anticipated demand for its acquired companies’ products and services; reAlpha’s ability to successfully enter new geographic markets; reAlpha’s ability to obtain the necessary regulatory and legal approvals to expand into additional U.S. states and maintain, or obtain, brokerage licenses in such states; reAlpha’s ability to generate additional sales or revenue from having access to, or obtaining, additional U.S. states brokerage licenses; the inability to maintain and strengthen reAlpha’s brand and reputation; reAlpha’s ability to expand its operations nationwide by the end of 2025; reAlpha’s ability to scale its operational capabilities to expand into additional geographic markets; the potential loss of key employees of its acquired companies, including, but not limited to, the broker providing services on behalf of US Realty, one of reAlpha’s subsidiaries; reAlpha’s inability to accurately forecast demand for short-term rentals and AI-based real estate focused products; the inability to execute business objectives and growth strategies successfully or sustain reAlpha’s growth; the inability of reAlpha’s customers to pay for reAlpha’s services; changes in applicable laws or regulations, and the impact of the regulatory environment and complexities with compliance related to such environment; and other risks and uncertainties indicated in reAlpha’s SEC filings. Forward-looking statements are based on the opinions and estimates of management at the date the statements are made and are subject to a variety of risks and uncertainties and other factors that could cause actual events or results to differ materially from those anticipated in the forward-looking statements. Although reAlpha believes that the expectations reflected in the forward-looking statements are reasonable, there can be no assurance that such expectations will prove to be correct. reAlpha’s future results, level of activity, performance or achievements may differ materially from those contemplated, expressed or implied by the forward-looking statements, and there is no representation that the actual results achieved will be the same, in whole or in part, as those set out in the forward-looking statements. For more information about the factors that could cause such differences, please refer to reAlpha’s filings with the SEC. Readers are cautioned not to put undue reliance on forward-looking statements, and reAlpha does not undertake any obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise, except as required by law.
Company Contact
Investor Relations
investorrelations@realpha.com
Media Contact
Alliance Advisors IR on behalf of reAlpha
fbhabrawala@allianceadvisors.com
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