The SEC versus Ripple case offers a wealth of lessons for the entire crypto world and beyond.
The legal battle between the US Securities and Exchange Commission (SEC) and Ripple Labs, the company behind the XRP cryptocurrency, has kept the cryptocurrency world on edge in recent years.
However, in the seemingly endless legal tug-of-war between the US authority and the company, some important questions have been raised about the regulation of cryptocurrencies, particularly the classification of tokens. The decisions and developments in this case are far-reaching and highlight the challenges facing both the crypto industry and regulators.
SEC vs. Ripple: What Happened?
The SEC, the American securities regulator, has launched a search for cryptocurrency and cryptocurrency exchanges. The reasons are, at least in part, obvious.
On the one hand, there is the collapse of the Terra Luna cryptocurrency and the bankruptcy of the FTX crypto exchange. Additionally, SEC chief Gary Gensler is considered a major critic of cryptocurrencies. The SEC filed a lawsuit against Ripple Labs in 2020. The allegation: The company is said to have raised around $1.3 billion through an unregistered securities offering. The “unregistered security” is the cryptocurrency XRP, Ripple’s native token.
Furthermore, the management of Ripple Labs is said to have manipulated the price of its cryptocurrency. Since then, the SEC and Ripple have been arguing in court and the crypto company has already achieved important partial success.
A competent court has decided that the XRP cryptocurrency should not be classified as a security. As expected, the SEC filed an appeal, which was rejected. Charges against Ripple Labs executives were also dropped. However, the process has not yet been finally concluded. If Ripple wins, it could be a milestone for the entire crypto world.
What Lessons Can Be Learned from the SEC v. Ripple Case?
Even if the cryptocurrency world is fighting tooth and nail, the Ripple case highlights the need for clear and uniform regulation of cryptocurrencies. Unclear regulations can cause confusion and hinder the development of crypto companies.
However, it is doubtful that Howey’s test should serve as a basis for this. The test that forms the legal basis in the US for determining whether an asset should be classified as a security or not dates back to 1946.
Furthermore, regulation is not bad in itself. It can help protect the integrity of the crypto market and increase investor confidence. Uniform regulation creates legal clarity and certainty, both for cryptocurrency companies and investors. This in turn promotes the acceptance and use of cryptocurrencies.
Additionally, regulation can be an important step toward consumer protection. Despite all the efforts, the crypto industry still has a dirty image. With regulation, fraudulent activities could be drastically reduced, as well as the issue of money laundering and other illegal activities.
Another issue that the crypto world is repeatedly criticized for is transparency and traceability. Regulation could simplify and clearly define the cooperation between the crypto industry and regulators.
If the crypto industry had been regulated from the beginning, the SEC would not have stood a chance with its lawsuit. In Germany, crypto exchanges are subject to licensing requirements. So far, seven companies have received the license, including Coinbase, Trade Republic, and Bitpanda.
Nevertheless, the SEC is neither hostile nor distrustful of all cryptocurrencies. In fact, all signs point to the agency potentially approving a Bitcoin spot ETF in January 2023. As expected, the price of Bitcoin and its derivatives is rising again.
By Leonardo Pérez
