Ripple – market structure bill
A statement late Friday from House Agriculture Committee Chair Glenn “GT” Thompson (R, PA), and House Financial Services (HFS) Committee Chair Patrick McHenry (R, NC) said that the Ripple ruling meant digital assets regulation – beginning with legislation from Congress – was needed more than ever.
From their statement: “‘This decision underscores the need for Congress to provide clear rules of the road for the digital asset ecosystem—it’s misguided to think otherwise,’ said the [two] lawmakers. The ruling gives large institutional investors greater protections than everyday Americans. Outcomes like this are what happens when regulators force courts to make policy instead of Congress. Our comprehensive market structure legislation will give all investors, customers, and market participants the same longstanding protections found in traditional financial markets.” Read the entire statement.
Later, the Republican statement looked to claim the partisan high ground, “The decision also recognizes what Republicans have said all along: there is a limit to the SEC’s reach.”
To be sure, some Democrats, such as Senator Kirsten Gillibrand (D, NY), Rep. Ritchie Torres and Rep. Josh Gottheimer (D, NJ), to name a few, might also claim this high ground with their own various SEC criticisms. It will be curious to see if or how the Biden Administration and, therefore, Democratic leadership adjust their digital assets position.
Ripple – SEC future
The impact of the Ripple ruling on the SEC has generally been seen by the pro-digital assets community as a new dawn – pending appeals – for the agency and its digital assets approach. Unsurprisingly, Stu Alderoty, who is Ripple’s Chief Legal Officer told Politico late last week, “[The SEC’s] regulation-by-enforcement strategies that have crippled the crypto economy in the U.S. have been humbled by this decision.” Read it.
Democrats and 2024
For Democratic leadership inside the Beltway, the Ripple outcome could be a canary in the crypto coal mine with a motherlode of imminent bad news related to the party’s “anti-crypto” positioning for the next general election in 2024.
Let’s explore the schedule of possibilities pre-general election:
- Ripple’s XRP token is not a security. Check. (Reminder: the District Judge is Analisa Torres, an appointee of the Obama Administration.)
- Grayscale wins its lawsuit with the SEC – a decision is expected by the end of August if not sooner.
- BlackRock and Democratic donor Larry Fink wins approval of its Bitcoin Spot ETF… let alone, other finance companies (Bitwise, ARK, NASDAQ, Cboe, etc.) who have registered similar applications. By the way, have you heard BlackRock CEO Larry Fink lately? Listen to this interview on Friday on CNBC’s “Squawk on the Street” where Fink says, “Crypto is an international asset and will transcend any one currency valuation.”
- Coinbase wins battles in its lawsuit with the SEC here and there (see below), or the lawsuit gets thrown out altogether.
- Number go up – If the prices of Bitcoin, Ethereum and other tokens take off from current levels as some have predicted in advance of the election, the market is ignited once again.
- Public interest – Suddenly, with elevating prices, the retail public wants to invest again and wonders what’s going on with digital assets in Washington. At this point, it would have been great for Dems to be able to claim a high ground around a new, evolved digital assets regime with robust consumer protections.
- Media returns – The press doubles or triples down on digital assets coverage as they follow the consumer.
- TradFi – Wait… now they’re interested? Yes, traditional finance was always the digital assets end game. At the end of the day, it’s all just finance. TradFi now believes digital assets are an important part of their product mix as it attempts to add offerings which trickle to the bottom line of their institutions and result in growing, or sustaining, the U.S. financial system hegemony. Let alone, TradFi now will now supercharge the digital assets media frenzy and help normalize the novel industry.
Democrats and 2024 – Congress
Going into the 2024 general election, anti-crypto Congressional Democrats and the Biden Administration could be seen as 1) behind the times 2) not putting in place proper consumer protections 3) meanwhile, Republicans will have made digital assets a priority in their House majority agenda in the 118th Congress with House Committees on Agriculture, Financial Services and Energy and Commerce, to name three, having actively considered not only consumer protections but the perception of prioritizing American innovation.
Previous Democratic communications such as those from HFS Democrats saying, “Do we really even need this legislation?” about the digital assets market structure bill, could become a liability.
Will Chair Sherrod Brown (D, OH) let any digital assets bill in, on or through his Banking Committee? How about stablecoins? -even Treasury Secretary Janet Yellen is for stablecoin legislation. Unfortunately for Brown, his own 2024 re-election efforts will be a distraction as he is in a “toss-up” election according to local media. It should be noted that Ranking Member Tim Scott (R, SC) is tied up with a presidential run of his own.
Perhaps, new Democratic efforts – and new bipartisan efforts that can lead to bicameral success – start with Chair Ron Wyden (D, OR) and Ranking Member Mike Crapo’s (R, ID) partnership in Senate Finance, which is already thoughtfully tackling digital assets taxes. The partnership may be why Senators Cynthia Lummis (R, WY) and Kirsten Gillibrand (D, NY) originally decided to send their Responsible Financial Innovation Act (RFIA) to Senate Finance in the last Congress rather than Senate Banking.
The need for Senate bipartisanship re-kindles memories of Chair Debbie Stabenow (D, MI) and Ranking Member John Boozman (R, AR) in Senate Ag who appeared in sync last year, and still do (see Farm bill), until Sam Bankman-Fried threw everyone for a digital assets mega-loop and blew up the Digital Commodities Consumer Protection Act (DCCPA).
“I’m feeling good about stablecoins. (…) We’ve made tremendous progress there.” said Rep. Gregory Meeks (D, NY) a senior HFS committee Democrat – Politico
what could go wrong
If you’re in the pro-digital assets legislation camp, the list of new, destructive moments appears limited… we guess that’s good. Doesn’t seem like anything to crow about though.
Another FTX – what company would that be?
There has been such a decimation to digital assets already… what’s left with any scale? Monkey pictures?
We may see soon if the history of Securities and Exchange Commission (SEC) charges coinciding with the timing of digital assets hearings in the House continues. The SEC could have lawsuits read to go if it’s looking to steal the thunder of 1) the upcoming Markup of the market structure and stablecoin bills by the House Financial Services Committee or 2) an eventual House floor vote.
The Legislative Process: Committee Consideration – Congress.gov
Ripple – more reaction
After the ruling by District Judge Analisa Torres on the lawsuit between the Securities and Exchange Commission (SEC) and Ripple regarding its XRP token last Thursday, some in the financial press expressed skepticism while most in the pro-crypto world lauded the decision.
Bloomberg columnist Matt Levine wrote, “When Ripple sold XRP to retail investors in on-exchange trades, anonymously and with no disclosure, that was not an ‘investment contract’ and so not a securities offering. That’s so weird! I should say: I don’t have a strong view on whether XRP is a security. My gut is that it is, that it is effectively a kind of quasi-stock in Ripple’s ecosystem…” Read more.
Financial regulation newsletter, Capital Account, wasn’t so sure about the good vibes for digital assets coming out of the decision saying: “The [SEC] passed a controversial rule on money market funds, and was handed a partial defeat in its long-running legal battle with the crypto company Ripple. The digital asset industry was quick to crow, but the confusing district court ruling isn’t likely to be the last word.”
Summarizing the opinion of critics of the Ripple ruling, The Wall Street Journal echoed, “Small investors, who use exchanges to make crypto investments, wind up with no protection under the judge’s reasoning. But bigger investors, who negotiate directly with token issuers and often get better prices, have the protection of securities laws.” Read that one.
But, Haun Ventures CEO Kathryn Haun published a Twitter thread saying, in part, “I’ve long said that if Congress doesn’t act, then courts–not the SEC–will have the final word. The system takes time but I believe more decisions like yesterday’s are coming and will provide more guidance. That said, the complexity of the court’s reasoning here is more proof that it would be most appropriate for Congress to set the policy for the future of this technology in the US.” Read Haun’s thread.
Blockchain Association policy executive Jake Chervinsky offered his own clarification on Twitter, “Some folks (read: financial journalists) are still confused about the Ripple decision. The key holding is that “investment contract” analysis must focus on TRANSACTIONS, not ASSETS. Tokens are not securities. Transactions in tokens can be, depending on facts and circumstances.” Read his thread on Twitter.
Coinbase versus SEC
In a seemingly remarkable court interaction in the lawsuit involving the SEC’s charges against crytpo platform, Coinbase, District Judge Katherine Failla appeared to be taking Coinbase’s side in a “premotion conference” on Thursday morning.
Here’s a snippet from the transcript…
THE COURT: You never could have said to [Coinbase], hey, you guys need to register as a securities exchange. That was within the power of the SEC to do, was it not?
MR. MANCUSO (SEC): I can’t really speak to that.
THE COURT: I think it was. I don’t think anything stopped the commission from doing it. I am not suggesting, sir, that this is dispositive or that there is an estoppel issue. But it’s not crazy in the Failla parlance for Coinbase to think that what they were doing was OK because it was exactly what you let them do when they issued the S-1. That’s the point I’m making. You may say that they and I are reading too much into the issuance of the S-1.
MR. MANCUSO (SEC): I’d agree with that.
THE COURT: I might disagree with that, but I do understand. Eventually, sir, we are going to get to the major questions doctrine…
see more tips
Crypto Is Back From the Dead After Court Ruling. Why It’s a Big Moment – Barron’s
Opinion: Ripple’s Legal Win Means It’s Time for Crypto to Stand Up to the SEC – ConsenSys’ Bill Hughes in CoinDesk
Opinion: It’s time to move crypto from chaos to order – a16z’s Brian Quintenz and Miles Jennings in Fortune
Binance Lays Off Over 1,000 Employees – The Wall Street Journal
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