A Disappointed Investor Sues Ripple, Alleging Its XRP Is a Security, Not a Digital Currency

Ripple Labs Inc. has notched a number of successes lately for its distributed-ledger technology, but now it finds its cryptocurrency, known as XRP, is caught up in a lawsuit that reflects a larger debate over whether such digital tokens constitute securities.

Ryan Coffey, an investor who bought XRP in January and later that month sold his holdings at a loss, on Thursday filed a class-action suit in California State Court in San Francisco alleging that XRP is not a currency, but rather an unregistered security. Federal law requires instruments defined as securities be registered with the Securities and Exchange Commission, but whether digital currencies qualify as securities has become an increasingly debated topic as such tokens gain popularity.

Interestingly, the suit draws a distinction between XRP and Bitcoin, which attracted hordes of new buyers last year as its price multiplied roughly 20-fold before crashing in December. Unlike Bitcoin, which is created over time by network entities known as miners, “all 100 billion of the XRP in existence were created out of thin air by Ripple Labs at its inception in 2013,” Coffey’s suit alleges.

Coffey bought 650 XRP at $2.60 and sold the holding at “approximately” $1.70 nearly two weeks later, according to the suit. XRP, whose $32 billion market capitalization ranks it third after Bitcoin and Ethereum, reached an all-time high above $3.00 on Jan. 4 but then began trending rapidly downward, losing more than two-thirds of its value by early February. It was trading at 81 cents Monday morning, according to Coinmarketcap.com.

Asked by Digital Transactions News about the suit, San Francisco-based Ripple said in an email that its policy is not to comment on pending litigation. The spokesperson did add, however, that “Ripple maintains that [XRP] is NOT a security.”