“It will affect the entire cryptocurrency industry”: LBRY tokens recognized as securities — what now awaits Ripple and others?

A precedent has happened: On November 7, the U.S. Securities and Exchange Commission (SEC) won a lawsuit against the blockchain-based publishing company LBRY Inc. After five years, the crypto company was found guilty of illegally trading digital assets as securities. This was reported by defense lawyer James K. Filan.

It would seem, what’s the big deal? But the SEC has many such claims against various developers from the Web3 world, from Yuga Labs (creators of the NFT collection Bored Ape Yacht Club) to Ethereum. 

In July 2022, the SEC had already equated nine cryptocurrencies with securities: AMP (AMP), Rally (RLY), DerivaDEX (DDX), XYO (XYO), Rari management token (RGT), LCX (LCX), Powerledger (POWR), DFX Finance (DFX) and Kromatika (KROM). 

All this has far-reaching consequences. We dealt with what those are and what you should do with this information (except that SEC’s chief Gary Gensler has already annoyed everyone in the crypto industry — it’s clear enough).

LBC tokens plummet in value by nearly 30%, and XRP drops next

LBC tokens have plummeted in value by nearly 30% in 24 hours and are now worth about $0.01405.

The value of XRP began to fall next. As of this writing, the price is down nearly 7% to $0.4394.

What does this have to do with Ripple, and what’s the Howie test?

LBRY CEO Jeremy Kauffman said this court ruling in favor of the SEC “threatens the entire U.S. cryptocurrency industry” because almost every cryptocurrency would be considered a security.

And given that the SEC has sued Ripple, there are fears that the same fate will soon befall blockchain, whose cryptocurrency has only recently begun to take off. After all, back in late 2020, the SEC accused Ripple and two of its executives of floating $1.3 billion in unregistered securities. After such information, the price of tokens fell.

Even before this court ruling, former lawyer and Evernode co-founder Scott Chamberlain warned that: either crypto would break Howie, or Howie would break the crypto. 

In the U.S., the so-called Howey test, which was developed by the U.S. Supreme Court back in 1946, is used to determine whether security meets the status of a security.

According to it, an investment in securities is an investment of money in a common enterprise with the expectation of profit, which is related to the activities of others. If an NFT or cryptocurrency falls under these criteria, it is subject to government regulation under the securities markets law. Sales of such digital assets will only be possible if they are officially registered with the SEC (hello, centralization!).

And the lack of registration in the case of recognition of the asset as a security will result in fines and the delisting of cryptocurrency on the platforms.

In other words, if Howey’s test criteria are not revised, it is fraught. The SEC could get to almost any NFT or cryptocurrency in the same way in court.