SEC v Ripple: why this case is important for the crypto space

⚖️ The SEC v Ripple legal drama may soon come to its conclusion, and many believe it might be favorable to Ripple: $XRP has gained almost 70% vs last week, witnessing an overall positive sentiment.

However, a positive ruling may be good not only for Ripple, but for the whole crypto space. Here’s why.

The SEC filed a suit against Ripple Labs and its two co-founders in December 2020, accusing them of selling $1.3 billion worth of unregistered securities – the $XRP coins, pre-mined in 2012.

After two years of litigation, both parties called for a summary judgement last Saturday, which means that they both consider the judge has enough evidence to make a ruling without going to trial.

According to Ripple’s lawyer, during these two years, the SEC could not prove that the sales constituted an “investment contract”. However, it may have discredited itself and its true intentions ?

The mission of the SEC is to “protect investors… and promote a market environment that is worthy of the public’s trust”.

⚖️ Investors

As the lawsuit had a negative impact on the XRP price (the coin was even delisted from some exchanges), the investors argue that instead of protecting them the SEC hurt them. Over 10’000 of XRP holders were allowed to join the lawsuit in an “amici” status (not a party to litigation but allowed to advise the court).

⚖️ Market

By the time the SEC decided that XRPs were securities, the coins have been traded for over 8 years. A healthy market can’t operate in fear of retroactive persecutions, all while the governing authority refuses to give clear instruction as to what cryptoassets are considered securities. The Chamber of Digital Commerce, a US group advocating for clear regulatory action on crypto markets, has been granted the amici status this week.

⚖️ Rule of law

The SEC’s approach is widely considered as an overreach. Its desperate attempts to deny the amici status to XRP holders and CDC, as well as the one to conceal the speech of its own former director, William Hinman (where he claimed ETH is not a security), did not yield result. The Magistrate that denied the Hinman speech motion has even denounced the SEC’s tactics as a “hypocrisy”, accusing the agency of putting its own goals before the “faithful allegiance to the law.”

The Ripple case can create far-reaching consequences for the whole crypto space: clarifying the status of the pre-mined coins (Ethereum did some too), providing legal clarity on the securities definition… maybe even raising questions about the real role and the limits of the SEC authority.

The final ruling is expected by March-April 2023.