21st October 2022 > > XRP (Ripple) update.

tl;dr

XRP (Ripple) update and what it means for us.

Market Snap

Market Wrap

Long end treasuries are in freefall.

Is this the market chaos that all major news outlets have been screaming about for the last fortnight with no actual data – until now – to back up their lurid and inaccurate reporting?

Occasional Series – The Economist

Using tired old tropes in a pejorative way. Well, well, well.

That’s my subscription cancelled. I urge you to do the same.

Curious Cryptos’ Commentary – XRP (Ripple) update

By way of a quick recap, way back in the mists of time – December 22nd 2020 to be exact when BTC was trading in the low 20s – Ripple Labs received a lawsuit from the SEC (Securities and Exchange Commission) claiming that the company had been selling unregistered securities in the form of XRP.

This is not a trivial or arcane accusation. Penalties can be severe both financially and in terms of jail-time. It might also have huge ramifications for the entire crypto industry, which we will get into later.

In the immediate aftermath of this lawsuit XRP lost half its market cap of $28 billion though I note it is back to $22 billion today.

Meanwhile, this legal fight has been conducted very publicly by Ripple Labs, an unusual turn of events. The SEC is very powerful, and rarely is its authority challenged in the way it has been. This is no bad thing whichever dog you are backing with the bookies – transparency in our legislative processes is a key cornerstone of our Western liberal judicial philosophy.

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Ripple Lab’s defence appears to rest on the background to a speech made by William Hinman in 2018, a lawyer who at that time was on a sabbatical at the SEC.

In that speech he declared that BTC and ETH are commodities, based upon his personal view of the extent of their decentralisation. In particular, it seems that he conceded that though ETH was originally a security, its subsequent decentralisation made that fact irrelevant.

This is an interesting stance to take and would appear to be at odds with all known regulatory and legislative practise throughout the world.

Whatever.

Accusations have been made that William Hinman was compromised because his former law firm retained the Ethereum Foundation as a client. Given the hypothesis of six degrees of separation between everyone on the planet, this seems to me to be a ridiculous and far-fetched bit of mud-throwing, but please don’t repeat that to XRP evangelists. They will shout at you and me for weeks afterwards.

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After a prolonged bout of court battles, the SEC has finally given up documents and email correspondence around William Hinman’s speech.

Unfortunately, the courts have agreed to the SEC’s request that this documentary evidence remains private, so we cannot look at it ourselves.

However, the initial reactions from Ripple General Counsel Stuart Alderoty do not pull any punches:

“Over 18 months and 6 court orders later, we finally have the Hinman docs (internal SEC emails and drafts of his infamous 2018 speech). While they remain confidential for now (at the SEC’s insistence), I can say that it was well worth the fight to get them. “

And:

“I’ve always felt good about our legal arguments, and I feel even better now. I always felt bad about the SEC’s tactics, and I feel even worse about them now.”

Brad Garlinghouse, Ripple CEO had this to say:

“The SEC wants you to think that it cares about disclosure, transparency and clarity. Don’t believe them. When the truth eventually comes out, the shamefulness of their behavior here will shock you.”

I sense we are close to the denouement now.

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The key question is this. Apart from holders of XRP (*), why do any of us care?

A theme that has run throughout the whole of 2022 is the sense of a regulatory land grab by the SEC over cryptocurrencies other than BTC and ETH. Though - following The Merge - even the latter now appears to be in the sights of the SEC’s Chair Gary Gensler. Good luck with that mate.

Recently proposed legislation in the US, notably the Lummis-Gillibrand bill (see CCC 8th, 9th, and 15th June 2022 amongst many others) has attempted to address the thorny question of which, if any, cryptos are securities, and which are commodities. It is settled that BTC, and ETH are commodities, but there are going to be ongoing battles about all other coins.

Securities laws are in place for a very good reason. They are there to protect investors, and that is patently a good thing.

But as we have seen from the Lummis-Gillibrand bill (which gets the CCC’s seal of approval) the Howey test of whether an instrument is a security or not is exceedingly difficult to apply to the digital world. Its relevance to cryptos is debateable at best.

It would be far better in my opinion, for what it is worth, that cryptos generally are assumed to be commodities, unless specifically structured as securities.

That would then give legislative and regulatory headroom to develop, in tandem with market participants, rules that apply specifically to the crypto world, rules that protect investors whilst encouraging and fostering innovation and development.

This SEC vs Ripple Labs lawsuit is an important way maker to determine which route we will take.

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For a much more in-depth and insightful history then I heartily recommend this piece of journalism as opposed to my brief scribbles:

https://decrypt.co/78153/ripple-inside-the-sec-case-that-could-make-or-break-the-crypto-industry

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(*) For disclosure purposes the CCC recently made a first investment in XRP in anticipation of a positive outcome to this legal process.