There was a court decision in the Ripple/XRP case yesterday, which set the internet on fire.
The proponents of XRP were boasting that XRP was confirmed to not be a security. The detractors of XRP were claiming that XRP sales to institutions were confirmed to be sales of unregistered securities.
So which is true?
The answer is complex, but both have a strong argument.
First, institutional sales of XRP were deemed to be unregistered security sales.
The argument is that institutions were not buying XRP as a replacement for fiat currency, but rather they were buying XRP for the future potential appreciation in the token price.
Here is the relevant section from the ruling:
The explanation seems crystal clear here, so you may be asking yourself why XRP almost doubled in price yesterday and people seem to be celebrating on the internet? Well, non-institutional sales—including on exchanges and secondary sales—were confirmed to not qualify as sales of a security.
Ripple’s Chief Legal Officer Stuart Alderoty said:
“A huge win today – as a matter of law - XRP is not a security. Also a matter of law - sales on exchanges are not securities. Sales by executives are not securities. Other XRP distributions – to developers, to charities, to employees are not securities.”
This is where you are getting the enthusiasm, and subsequent price appreciation, related to XRP. In majority of the cases being evaluated by the court, XRP has been found to not be a security.
I won’t bore you with more legal details. You can read those elsewhere. But the ramifications from this legal decision are going to be immense. Here are a few that immediately come to mind:
If XRP is not a security, then majority of the other cryptocurrencies will probably be classified as not a security. This would create regulatory clarity once confirmed.
Regulatory clarity will lead to more investors allocating capital to the space. They will have less friction in getting approvals from their compliance departments, while also having greater confidence in the underlying assets that they are holding.
Exchanges, such as Coinbase, are already adding XRP back to their platforms. This means that more investors will have access to the token, but it also creates a stronger argument for Coinbase and others that they are not allowing unregistered securities to trade on their platform. Coinbase’s stock is up 100% over the last 30 days and 37% in the last 5 days.
The SEC will have to decide how they are going to proceed with the regulatory oversight of the cryptocurrency tokens. There is an argument for them continuing on the same path as they were before this decision, but there is also an argument for a revised strategy that is less aggressive.
It is not hard to see this legal decision emboldening various entrepreneurs and companies in the crypto industry. Some will take a path of arrogance and “I told you so!,” but others will simply use this new information to adapt their strategy to further achieve their goals without being loud and brash about it.
There were a number of other people who had commentary about the clarification that XRP is not a security.
Take Cameron and Tyler Winklevoss as examples.
Cameron said:
“The sale of XRP on exchanges is NOT a security. Which means the sales of all cryptos on exchanges are NOT securities
and @SECGov and @GaryGensler have NO jurisdiction over them.
This is a watershed moment that relegates the SEC to TradFi and makes it a dinosaur regulator. Buh-bye”
Tyler stated a similar sentiment:
“Today highlights how the @SECGov is a failed institution. They completely missed Celsius (whose founder was indicted on criminal charges this morning) and took a big L in the Ripple case (XRP is NOT a security).
They don't know where to swing, and when they do, they strike out. It's time for Congress to cut their enforcement budget and instruct them to stick to guidance and rule making.”
As expected, the SEC had a different take on the situation.
They chose to focus on the parts of the court’s decision that were favorable to the regulatory body:
This situation is not over yet.
There will be further developments in the coming months, but it will be worth continuing to pay attention — we are getting a front row seat to the foundation of regulatory treatment in a multi-trillion dollar market.
These rules will shape the way that capital is allocated over the next few decades and can have a material impact on the uses cases allowed or financial returns that is captured by investors.
I am not a lawyer, nor are many of you, so I always remind myself that the lawyers on both sides will argue their best case and the judge will make a decision.##
The beauty of the United States is that we respect the court of law and have the opportunity to use due process to get as close to truth as possible.
