Ripple vs. SEC: Why Secondary Crypto Sales Could Upend Regulatory Assumptions

The SEC’s crusade against Ripple hinges on a flawed premise—that secondary market crypto trades equate to securities transactions. Here’s why the agency’s logic might crumble.

The Blind Spot in the SEC’s Playbook

Regulators keep treating crypto exchanges like stock markets—but blockchain’s decentralized nature blows up that analogy. When you buy XRP from Coinbase today, you’re not funding Ripple’s operations any more than buying a used Toyota funds Tesla.

How Courts Are Starting to Push Back

Recent rulings suggest judges aren’t buying the SEC’s blanket securities classification. If secondary sales get excluded, the whole house of cards collapses—and with it, the agency’s favorite enforcement tactic.

The Irony Wall Street Won’t Admit

Meanwhile, traditional finance keeps peddling opaque derivatives and mortgage-backed securities—but sure, it’s the crypto peasants who need ’protection.’ The hypocrisy would be amusing if it weren’t so costly.

TLDR

• Ripple submitted a letter to the SEC stating that fungible crypto assets like XRP are not securities in secondary sales.
• The company referenced legal expert Lewis Cohen’s 2022 paper supporting its argument on the classification of crypto assets.
• Ripple highlighted a court ruling that XRP itself is not a security though some institutional sales were investment contracts.
• The company also cited SEC Commissioner Hester Peirce’s recent speech calling for a new regulatory approach to crypto.
• Ripple emphasized that most secondary market crypto transactions lack the legal structure required to be classified as securities.

Ripple submitted a letter to the US Securities and Exchange Commission (SEC) asserting that fungible crypto assets are not securities. The company argued that XRP and similar digital assets do not meet the legal criteria in secondary transactions. This claim follows favorable court decisions and aligns with recent statements by SEC Commissioner Hester Peirce.

Ripple Cites Legal Expert and Court Rulings

Ripple referred to the 2022 paper by attorney Lewis Cohen, who examined the legal structure of fungible crypto assets. According to Cohen, fungible assets transferred in secondary markets do not create legal obligations between the seller and buyer. He argued that this absence of a legal relationship excludes such assets from being classified as securities.

Ripple also highlighted the court’s prior ruling that XRP itself is not a security, even though some institutional sales were considered investment contracts. The court distinguished between Ripple’s direct sales and secondary sales on exchanges, calling only the former investment contracts. Consequently, Ripple stressed that XRP in secondary sales does not carry security characteristics.

In addition, Ripple emphasized that Cohen’s work has been widely cited by legal professionals and referenced in recent regulatory discussions. The company believes this supports its ongoing stance against the SEC’s broad classification of digital assets. It used these findings to reinforce its latest claims in the formal letter sent to the Commission.

Commissioner Peirce Supports New Regulatory Approach

Ripple also pointed to a speech from SEC Commissioner Hester Peirce on May 19, in which she criticized the agency’s recent approach. Peirce stated that most crypto assets do not qualify as securities, challenging the SEC’s earlier stance under Gary Gensler. She stressed that economic realities must guide regulatory decisions, especially in secondary sales.

Peirce expressed her view that crypto regulation requires a coherent framework reflecting market dynamics and technology. She also called for correcting past regulatory missteps and emphasized the importance of legal clarity for all parties. Ripple referred to her remarks as further support for the idea that XRP and similar tokens should not be classified as securities.

By citing the Commissioner’s comments, Ripple aimed to demonstrate growing internal disagreement within the SEC. It claimed that such dissent reveals the weaknesses in past enforcement actions. Ripple argued that this development highlights the urgent need for clear and consistent regulatory standards.

SEC Drops Appeal as Ripple Maintains Position

Ripple’s legal battle with the SEC began in 2020 when the agency claimed XRP sales violated securities law. After years of litigation, the court ruled that XRP in secondary transactions is not a security. Following this, the SEC dropped its appeal against the decision favoring Ripple.

The company mentioned the dropped appeal in its letter, framing it as a pivotal moment in the ongoing case. It said the court recognized that Ripple’s XRP token does not meet the definition of a security. The SEC’s withdrawal strengthens Ripple’s argument and weakens previous enforcement positions.