Today, SEC has just launched a lawsuit against Ripple, and it believes that XRP is unregistered security, but has been sold illegally from 2013 until today. So it sued Ripple, along with its CEO Brad Garlinghouse and co-founder Chris Larsen.
SEC has apparently been systematically regulating the crypto digital currency market
The SEC’s indictment of Ripple was expected. The vast majority of crypto-digital currencies in the market today are designed to be very similar to security-based products. In order to regulate this market, the SEC has been constantly emphasizing the definition of a security, which is commonly referred to as the Howey Test, and if a cryptocurrency or token meets the Howey Test, then it should be considered a security-based product. It also needs to operate in accordance with securities regulations.
While the SEC continues to emphasize its fundamental position in this regard, it also continues to take regulatory action to sue programs in the market that it believes are in violation. The most notable of these cases is the lawsuit it initiated and ultimately won against Telegram in October 2019, the out-of-court settlement reached with EOS in September 2019, and the recent lawsuit against Kik.
In addition to these more influential cryptocurrencies, the SEC has been consistently indicting other relatively small-scale violations in the market, such as the recent penalty against ShipCoin.
As a result of the SEC’s stance on this and the measures it continues to take, the number of non-compliant tokens generated in the U.S. market has been significantly reduced. But this has not been eradicated, and non-compliant programs continue to appear in the marketplace. But now it appears that the SEC is taking a systematic approach to addressing non-compliant programs in the marketplace.
If we rank the crypto digital currencies by their market capitalization, the SEC has shown that Bitcoin and Ether, which are ranked first and second, are not security-based products in chronological order. Now the SEC is starting to prosecute Ripple, which is ranked third in market capitalization, so it seems that the SEC is addressing the influential cryptocurrencies in the market on a case-by-case basis.
The measures taken by the SEC are actually removing the uncertainty in terms of regulation. This will help crypto-digital finance to develop within a more regulated context. Since the characteristics of crypto-digital currencies like Ripple have not previously been clearly stated by regulators, there is a risk that various innovations in the market in this area will be in violation. Now that the SEC has clearly stated its position on Ripple, it will help the market to be more clear on the regulatory stance and the uncertainty in the market will be reduced.
The market needs clearer and more helpful securities regulations
Ripple has both securities and instrument properties. For the SEC, since Ripple has the properties of a security, it falls into the realm of SEC regulation. So it is legal for the SEC to take regulatory measures on Ripple. But Ripple does have instrumental properties as well. And there are applications of this instrumental property in the market (although not as widely advertised as Ripple itself). So Ripple is not just a traditional securities product.
Due to the development of innovations based on blockchain technology, such tokens with multiple properties or different properties at different times will continue to emerge. It is a huge challenge to regulate such tokens by the relevant regulations. Clearly, the market is ahead of the curve in this regard. The SEC’s lawsuit against Ripple may be the driving force behind revisions to the U.S. securities laws in this area.
Impact on Bitcoin and Ethereum
It’’s too early to tell what the outcome of the SEC’s case against Ripple will be. There is a chance that it will be banned completely, like Telegram, or that some sort of out-of-court settlement will be reached, like with EOS. Of course there is a chance that the SEC will lose the case, although the chance is very small. In general, it is possible that Ripple will not be traded as much as it is now, meaning that less money will flow into Ripple from the market. Some of this volume will then flow into bitcoin and ether. In addition, as the SEC will certainly gradually deal with the more influential cryptocurrencies in the market. Some of them will definitely exit the market and stop circulating. Therefore the market concentration of crypto-digital currencies will further increase. More money will flow into bitcoin and ether. As a result, the price of bitcoin and Ethereum will increase.
Looking at the trend of crypto digital assets, more new digital assets will be created in a centralized manner thereafter, for example, securities-based tokens. The chances of a distributed tokens like bitcoin and ether are smaller. Therefore, Bitcoin and Ether are the most representative digital assets among those generated in a distributed way. Their uniqueness will be more prominent, and their value will therefore increase.
Article from Gu Yanxi, Founder of Liyan Consulting
Translated by Yang(Mengyan Finance)