The cryptocurrency world is closely monitoring the status of the Security Exchange Commission’s enforcement action against XRP and Ripple. Over the last several years the SEC has filed over 75 cases arguing under the Howey Test that certain ICOs or cryptocurrencies are securities and the sales of those unregistered securities violate SEC regulations. The defendants in the XRP case, with the help of some legal scholars, are attempting to decouple the Howey Test from cryptocurrency.
If the Howey Test continues to be the law of the land, then it will have huge ramifications for high-profile coins moving from a proof of work to proof of stake. If the SEC prevails in the XRP case, then it is very likely that proof of stake cryptocurrencies will be further examined in subsequent SEC enforcement actions should proof of stake coins come with an expectation of a a percentage yield. A ruling in the SEC’s favor in the XRP case may cause it to reexamine whether proof of stake cryptocurrencies should be regulated as securities. A ruling is expected sometime in the First Quarter of 2022, and if that happens rest assured there will be members of the U.S. Congress pushing for additional oversight and regulation. In fact, recent U.S. Senate negotiations over the 2021 infrastructure bill involved an intense last-minute skirmish on how to use taxes on cryptocurrency transactions to help fund some infrastructure items such as repairs to bridges. The infrastructure bill arguments show that cryptocurrency is a fast-evolving area with competing issues of taxation, regulation and privacy.