The future of crypto regulation in the United States could well be decided in the coming months, and the Ripple affair is at the heart of it. Indeed, the filing of a new appeal by the Securities and Exchange Commission (SEC) on October 2, 2024, in its dispute against Ripple Labs, revives debates on the legal status of cryptos. After a first decision in favor of Ripple in 2023, this appeal reshuffles the cards, because the upcoming decision could redefine the rules of the game for an entire ecosystem.
SEC vs Ripple: A highly anticipated call!
On October 2, 2024, the SEC officially filed a notice of appeal against the judgment rendered by Judge Analisa Torres in the case between the agency and Ripple Labs. According to this judgment, the secondary sales of XRP, Ripple's native token, did not constitute transfers of securities. “XRP, as such, is not a security,” Torres ruled. Indeed, it relied on the SEC's inability to prove that the conditions of the Howey test were met for secondary market sales. However, the judge also concluded that Ripple's first sales to institutional investors did indeed constitute sales of securities, because they met the criteria for contractual investment.
Such a partial ruling had been seen as a big victory for Ripple and the crypto industry in general, as it drew a line between institutional sales and trading on public markets. However, the SEC's appealwhich seeks to reverse this decision, once again creates a climate of uncertainty. Thus, the SEC fears that this decision could weaken its ability to pursue actions against other cryptos based on their sales structure.
The issues of the appeal and the regulatory outlook
The SEC's appeal goes well beyond just Ripple's case. Indeed, the outcome of this case could set a fundamental legal precedent for the entire crypto industry. If the ruling favoring Ripple is upheld, it would significantly weaken the SEC's ability to regulate cryptos and consider them securities in cases of secondary sales. To date, the SEC has relied on the Howey test to define what a security is, but this lawsuit could result in a redefinition of that test in the context of cryptos.
At the same time, institutional players are showing increasing interest in XRP, which further strengthens the relevance of the matter. Bitwise recently filed to create an XRP-based ETF, although the SEC's appeal could delay that process.
On the same day that the SEC filed its notice of appeal in the Ripple case, the agency also announced the resignation of Gurbir Grewal, its chief enforcement officer, scheduled for October 11, 2024. Grewal, who had taken taking office in July 2021, quickly gained a reputation for spearheading the SEC's strict enforcement policy, particularly towards the crypto industry. Under his leadership, the agency has carried out more than a hundred legal actions against various players in the sector. Grewal has often been accused by crypto advocates of having an overly punitive approach, which aims to inhibit innovation rather than encourage a clear and constructive regulatory framework.
The outcome of this appeal will have major repercussions for Ripple, but also for the entire crypto market. As regulators continue to refine their approaches to this growing sector, the Ripple affair could well redefine the very basis of the regulation of these assets. Industry players are eagerly awaiting the verdict, as it will influence the legality of future sales of XRP, but also the SEC's approach to all cryptos.
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