The company just killed major Bitcoin news site CCN in a ‘crypto crackdown’


Rapid growth of cryptocurrency market capitalization to over $1.7 trillion, rapid increase in NFTs (25-25 billion in 2021, 4Billion in January 2022), other digital assets, as well as dramatic rises in DeFi (75 million) staking and liquidity pools ($108.4B as of Dec. 2021) raises the question: How should digital assets such as cryptocurrencies be regulated. The SEC is currently pursuing an enforcement action in the Southern District. This is because of the aggressive attitude taken by the Commission towards cryptocurrency. Legal experts and policymakers should be aware.

In December 2020, the SEC brought a civil enforcement action against Ripple Labs. It was a cross-border payments company with its top executives. The company claimed that XRP sales by it, which are native to Ripple’s blockchain ledgers, were not registered securities sales. Even on secondary markets, all sales of the token have been and remain “one long securities trading” in order to finance Ripple. This would require registration at the SEC. The Commission’s case rests on the interpretation of the 1946 Howey Supreme Court ruling. This is the standard used to determine whether an instrument is a security.

Although the White House issued an executive order regarding digital assets recently, it states only that there will be a “central response” but does not give details as to what that response will look like.

Ripple claims it didn’t issue XRP or create it using its decentralized ledger. It also claims its sales are similar to asset liquidations. Senior SEC officials made statements which could be interpreted as indicating the end of XRP as a security asset.

The SEC’s case rests on conclusory arguments regarding the nature of XRP. They believe that everyone would accept the arguments, despite the fact that there has been extensive activity over a long time by many market participants. It will do this for many years, ignoring any guidance provided by its officials and staff.

Market participants will assume any token, digital asset, or token can be considered security. Enforcement action could be taken against them regardless of how they are used. They do not have to be consistent and coherent. However, employees of issuers may be held responsible for aiding in the violation of securities laws.

The Southern District could agree to Ripple’s claim that XRP is a security and that all transactions of the asset were securities trades. If this happens, it will give the Commission broad discretion and be able to stop cryptocurrency trading in the United States. Instead, the court could send ingenious people overseas.

In the hopes of settling quickly with Ripple and its executives, the SEC could have launched a broad-based legal attack on Ripple. It has cash on hand and is ready to fight.

Ripple could prevail on Ripple’s fair notice defense, if the case goes through trial. This precedent would show that the Commission failed to provide fair notice of market participants due to the chaos it has caused. It would force the Commission to create the much-needed comprehensive industry guidance. The fear created by the settlements extracted in its cases against Kik Interactive and Telegram would be put to rest, and Coinbase may be emboldened to proceed with offering its cryptocurrency-backed lending product, ignoring the SEC’s chilling Wells notice issued earlier this year.

These are just a few of the many reasons why trillions of dollars in value are at stake. The futures of NFTs and DeFi as well as the futures Web3 apps, architectures, Web3 apps and Web3 applications will all be affected by Ripple.

This article is co-authored by Daniel Conway. He is an associate professor at the University of Arkansas’ Walton School of Business and co-director of its Blockchain Center for Excellence.


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