The SEC dropped its appeal against Ripple? Color me skeptical. I mean, I know Ripple’s CLO is uncorking the champagne and declaring it a day of victory, but why? Or is the SEC making a smart tactical withdrawal? Perhaps they are pulling back, retrenching and remobilizing to come at them with a more coordinated frontal assault. Don't be fooled by the headlines.
Ripple Won The Battle, Not War?
Let's be blunt. The SEC's case against Ripple was always…ambitious. Claiming XRP sales were unregistered securities? It reeked of matching an ostensibly innovation-friendly peg (crypto) into the very non-innovation-seeking hole (existing, applicable securities law). In truth, Ripple’s courtroom wins up to this dropped appeal were never a shock to those actively tuned in to the case. They shined a spotlight on the SEC’s overreach and the natural challenges associated with trying to enforce outdated laws against a new technology.
That doesn’t mean the SEC is now overnight an avowed crypto-loving dove. We imagine the agency to be doing some serious licking of said wounds, rethinking their approach. Or they could be pivoting to other crypto companies, companies where they believe they have a better shot at success. Think about it: low-hanging fruit, DeFi projects with questionable tokenomics, or exchanges with lax KYC/AML procedures. But the SEC cannot simply stop regulating, they will pivot.
Precedent Or Tactical Maneuver?
Ripple's victory does set a precedent. The court rulings established that XRP itself is not necessarily a security, and that secondary market sales of XRP are generally not investment contracts. This is huge. Taken together, it offers a level of transparency and understanding that has long been overdue.
Don’t look for this precedent to immediately shower the whole crypto universe with similar coverage. The SEC will counter with the claim that no, every token, every project, every case and circumstance is different and needs to be judged on its own merits. They will continue to wield the Howey Test as a clunky, oversized sword. Their agenda is to create empty spaces where they can assert dominance.
The real question is, can the Howey Test still be applied to crypto at all? It would be akin to trying to use a horse-drawn carriage to pilot a rocket launch. In order to be effective the SEC needs to update its mindset. At the same time, Congress needs to intervene and establish a true legislative framework, rather than relying on the SEC’s enforcement-by-regulation strategy.
Crypto Regulation's Future Outlook?
Stuart Alderoty recently articulated four praiseworthy principles for any future crypto regulation. These principles get to the heart of supporting innovation, safeguarding markets, stopping malicious actors, and protecting consumers. They're motherhood and apple pie. Everyone wants those things. The devil, as always, is in the details.
Will Congress actually get its act together this time and pass comprehensive legislation that deals with cryptocurrencies? Maybe. But don't hold your breath. Get ready for a confusing hodgepodge of rules from multiple federal agencies. This might foster a pick-your-winner environment that quashes competition and innovation.
What's more likely? Ongoing enforcement actions, potentially focused on identified priorities such as stablecoins or DeFi. More international cooperation between regulators, as both sides seek to avoid undesirable outcomes like regulatory arbitrage. And, sadly enough, continued bad news in the form of uncertainty for the crypto industry.
The SEC’s retreat in what has become the landmark Ripple case does not mean crypto regulation by enforcement is over. It signals a change in tactics.
Don't forget the old saying, "the graveyards are full of indispensable men." The SEC’s monopoly is not sacrosanct. If they don’t change, other agencies willing to change with the times will replace them.
Think of it like this: the SEC thought it could win by brute force, like a boxer swinging wildly. Ripple had remarkable footwork to evade, and the SEC couldn’t connect. Now, they’re returning to the practice field to master some new skills. And you can sure as hell bet that they’ll be back in the ring before long.
Stay vigilant. Stay informed. And above all, stay skeptical. The crypto revolution is only getting started and the regulatory war is only beginning. To be clear, this is one of the industry’s few apparent wins along a lengthy road.
