In the United States of America, a security is a tradeable financial asset of any kind. So when a new way of exchanging value comes along, such as cryptocurrency, and the government wants some control over it, the term 'security' seems like a pretty wide net.
But the term asset is the part that is cutting holes in this broad net. Some would say that an asset is anything of value that can be owned, and by that definition, Ethereum and Ripple are clearly securities. If on the other hand, an asset is a part of someone else's property that can be owned, then neither Ethereum nor Ripple can be defined as a security.
What Happens Next
Whether or not these cryptocurrencies get determined as securities is important, because they've been sold. And selling unregistered securities is against the law. Securities have to be registered before they are sold so that the people buying them can have certainty about things like who is behind them, what assets they have, and if their plan to make the securities worth more is reasonable.
It is important to remember here that the SEC only has civil enforcement authority, so must rely on cooperation with the FBI or other authorities to bring charges. And this is the real problem. Neither Ethereum nor Ripple are suspected of fraud, insider trading, or anything else.
And if you're holding Ethereum or Ripple, you'll be wondering what that might mean for you? There appears to be a risk that they will become 'restricted' or 'control' securities. These are securities that are no longer tradeable on the stock exchange. It is a bit like they are under embargo. Because of this, there is concern that it might become illegal to trade Ethereum or Ripple if they are found to be unregistered securities. Of course, that would be expected to have an impact on their value.
There is also hope that a clear determination by the SEC that Ethereum and Ripple are not securities, and didn't require registration will be made. In the uncertain world of cryptocurrency, having officially passed that test might give confidence to buyers and push up the value. It might also increase the confidence of developers and traditional businesses that are considering the benefits of smart contracts and other cryptocurrency endeavours.
There are plenty of reports going around the cryptosphere saying there is a meeting on the 7th of May which will impact whether Ethereum and Ripple are securities. This seems to stem from a Wall Street Journal article about it.
But as stated by Sporticus, "What is happening on May 7th is, what I can best describe as: an informal review or dialogue by a working group from both agencies, whose legal mandates overlap on the subject matter of this new legal and technological precedent, crypto, and how it fits under the law and regulations."
Whether Ethereum, Ripple, other cryptocurrencies, or even ICO tokens can be legally regulated in the United States of America by their SEC, is an important issue. But don't expect that issue to be resolved on the 7th of May.
Further notes: Ripple is apparently involved in "Coffey v. Ripple Labs Inc., Superior Court of the State of California (San Francisco)" But the author found no mention of it on their website.
An SEC investigation document that clarified its securities position when investigating The DAO is called:
Release No. 81207 / July 25, 2017
Report of Investigation Pursuant to Section 21(a) of the Securities Exchange Act of 1934: