Whether you’re a newcomer or a crypto veteran, you have likely heard of the SEC’s long-standing lawsuit against Ripple and it’s native token XRP.
Dating all the way back to December 2020, the lawsuit alleged that Rippled had conducted an unregistered securities offering by selling XRP, and that Ripple should have registered it with the SEC before conducting its sales.
Prior to the actual lawsuit, then SEC Director William Hinman, who also introduced the concept of the “Howey Test” to determine what is and is not a security, discussed the SEC’s view on whether a particular digital asset should be classified as a security.
Although the “Hinman Speech” occurred in 2018, it provided some guidance and insights on the regulatory treatment of cryptocurrencies and initial coin offerings (ICOs), in a time where crypto still seemed like the wild west.
Just today, internal SEC messages regarding the speech were finally unsealed during the SEC vs. Ripple lawsuit, despite attempts from the SEC to keep the documents sealed by claiming that they were not relevant to the case.
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What it means for Ripple
With Ripple’s case nearing half a decade of discussion, the Hinman documents were a deus ex machina that many hoped would finally bring the case to a resolution.
Prior to it’s unsealing, Ripple surged 7% intra-day, following a month of gradual incline. However, the documents provided no clear answer to the case, with the token giving back all of it’s gains and more.
However, there has been speculation suggesting that Ripple’s legal team was aware of the lawsuit’s lack of substance and strategically pursued the unsealing of documents. This move is perceived by them as an attempt to offer the cryptocurrency community a glimmer of hope during these challenging times.
How it Affects Cryptocurrency and Ethereum
When the Hinman Speech was made, it is worth noting that the cryptocurrency landscape was dominated by two prominent digital assets aside from Bitcoin, namely XRP and Ether. As such, then chairman Hinman made several internal comments to the SEC regarding Ethereum specifically, and its potential classification as a security.
In a recent Twitter thread, prominent user Adam Cochran highlights an intriguing aspect: during that period, the SEC refrained from issuing a definitive ruling on Ethereum’s status as a security. Instead, they emphasized the need for further in-depth analysis before reaching a conclusive determination.
As Ethereum did not meet all the conditions in the Howey Test, The SEC had opted to postpone any decisions for after a nuanced dicussion was held with Ethereum founder Vitalik Buterin and his lawyers.
Following the meeting, Hinman held the view that Ethereum, as it was offered at the time (Proof of Work), was not considered a security, and therefore could only raise Exchange Act and Commodities Act concerns.
As Cochran points out – for current SEC Chairman Gary Gensler to conclude that Ethereum is a security, he would not only have to fight a landslide of precedent, but also “admit to the idea that securities can change over time with decentralization”.
So …. What Does This Really Mean For Crypto?
Cochran’s analysis carries an optimistic tone for the future of Web3, as he dissects the documents to highlight a potential challenge for Gary Gensler.
According to Cochran, Gensler finds himself in a precarious position, as he would need to defy established norms of horizontal and vertical commonality to substantiate his argument.
Essentially, the Hinman documents have put Gensler between a rock and a hard place, creating a dilemma where he must navigate conflicting statements made by his predecessors.
More importantly, as Cochran concludes, Gensler is at a critical point where he must select one of two possibilities
- Securities status can morph over time with decentralization
- Securities status are immutable with commonality
While either ruling would have major implications on what is and is not considered a security, it would also bring about clearer regulations regarding Web3.
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[Editor’s Note: This article does not represent financial advice. Please do your own research before investing.]
Featured Image Credit: Chain Debrief
