SEC Lawsuit and Cryptocurrency Suppression Program

The Lawsuit

Months prior, the US Security and Exchange Commission (SEC) filed a lawsuit against Ripple Labs Inc., citing that Ripple (XRP) was selling unregistered securities. And just last week, the SEC filed another lawsuit, this time against LBRY Inc., again citing the same reason: Selling unregistered securities.

The SEC lawsuit against LBRY Inc. garnered a different response to that of the Ripple lawsuit. When Ripple was sued by the SEC, most people in the blockchain opted for a wait and see approach. But when the SEC filed a lawsuit against LBRY many were alarmed.

Why the difference in response you asked?

Cryptocurrency Suppression…

SEC’s Cryptocurrency Suppression Program

Many critics of the Security and Exchange Commission thought that the SEC might have gone too far when they filed a lawsuit against LBRY. They believed that the lawsuit against LBRY is part of an alleged 'cryptocurrency suppression program.'

As the name suggest, the alleged 'cryptocurrency suppression program' aims to hinder or suppress the growth of all cryptocurrencies. The goal of the program was to protect the interest of banks, the stock market and other financial institutions. Lastly, it was to ensure the supremacy of the US Dollar that was being threatened by cryptocurrencies like bitcoin.

Although the 'cryptocurrency suppression program' was just an allegation at the moment, many were concerned that if the SEC really wins the lawsuit against LBRY, the SEC might start targeting bigger cryptocurrencies like BTC and ETH – crippling the cryptocurrency industry in the process.

And this is no empty concern.

The reason the SEC gave for the lawsuit against LBRY Inc. was because LBRY sold their LBC tokens to investors in order to invest in the network without first registering the token as security.

So what happened was that LBRY wanted to improve their network so they sold their LBC tokens to investors and anyone who wanted to purchase them to fund the improvement. When LBRY Inc. was selling their tokens they did not find any problem with what they were doing because the tokens were being mined and used in the network long before the sale.

Obviously, didn’t see it the same way as the people running LBRY Inc. did. For the SEC the fact that LBRY sold their LBC tokens without registering it first as security was enough to warrant a lawsuit. The fact that LBRY did not do an initial coin offering before did not matter.

Why Should we be Concerned?

There’s a good reason why we should be concerned.

The logic that the SEC used to justify the lawsuit could also be used to attack other blockchain project, especially Ethereum. As Jeremy Kauffman described...

“Under the logic advanced by the SEC…every actively developed blockchain is at risk, especially Ethereum,” he said in an email to MarketWatch. “As long as Ethereum developers are coordinating in some way while holding the token, they are in danger.”- Jeremy Kauffman, LBRY CEO.

So basically, what would happen was that if read.cash or other blockchain project sold tokens to fund projects or improved without registering the tokens first as securities, they would be hounded by the SEC with a lawsuit.

Some of you might react to my use of read.cash since the website wasn’t actually selling tokens. All I’ll say to that is chill. I’m just using it as an example.

But that doesn’t mean that what ever happened to the lawsuit against LBRY won’t affect us.

Think about it. If by some reason BTC falls to the SEC, BCH won’t come out of it unscathed. This was because of correlation. Due to correlation, the fall and rise in the value of BTC would also affect the price of BCH and other cryptocurrencies. Not to mention BCH was a fork of BTC

Right now, the SEC does not see BTC as security but for all we know that could change in the future. If BTC was declared a security by the SEC one day then BCH and other cryptocurrencies will obviously become securities as well.

Of course that’s just a “what if” scenario. And the chance of the scenario I just mentioned from ever happening was very slim. Still, that doesn’t mean that we should be complacent about it.

Anyways, as Kaufmann mentioned, Ethereum might be at risk too if the SEC won the lawsuit against LBRY.

Why?

This was because ETH is considered both a security and not. That means that ETH was initially offered through a securities offering but was no longer considered one at that time. Yes, it’s slightly confusing but just roll with it.

Although  is no longer considered a security but SEC, the SEC could still dig Ethereum’s past status ( like how Twitter puritans dig old and “offensive” tweets to cancel people) to attack Ethereum.

Honestly, I won’t be surprised if the SEC really walks that path. Don’t forget, the SEC is there to protect bank, the financial institutions, and the US Dollar. If they dig more dirt on Ethereum they might just go after it.

The Howley Test

I’ve been talking about security this and security that but haven’t really discussed what constitute a security.

There’s actually three ways to determine whether an asset is a security. First, there must be an investment product that can be exchanged for value. Second, it must be an investment with an element of risk. And third, it must be tradable. For cryptocurrencies though, the lines were a little blurred.

Fortunately, there’s a thing called the Howey test. It’s a test that determines whether an asset that doesn’t look like a security be deemed a security.

How do we determine if an investment is a security using the Howey Test?

• There is an investment of money (Investors buying cryptos)

• The investment comes with an expectation of profit (Investors waiting for the cryptos to moon)

• This expectation of profit derives largely from the efforts of others (crypto-mining, etc.)

So then, what other popular tokens, aside from LBC and XRP are considered securities?

If we use the Howey test to determine what a security was, some popular tokens like HIVE, STEEM and even the upcoming XTM (Torum) could also be considered securities. Which mean the Hive.io, Steemit.com, and Torum must register first before the companies behind them starts offering the tokens for sale.

Actually, scratch that.

If we are just look at the determinants provided by the Howey test, then ALL cryptocurrencies are Securities. But since the SEC did not label BTC as a security, there might be other determinant that we didn’t know about.

Maybe, BTC was now too big and too important to be deemed as a security by the SEC? Or maybe, the SEC is preparing for something big, and the Ripple and LBRY lawsuit is just warm up for the alledged 'cryptocurrency suppression program.'

So what do you guys think? Will the LBRY lawsuit affect all blockchain projects? Or is Jeremy Kauffman just being an alarmist?

You decide but please let us know your thoughts in the comment section.

Thank you for reading.

Image Source: Pixabay