Unchained

The Chopping Block: Should XRP Holders Really Be Rejoicing?

Sat Jul 15 2023

Ripple CaseSEC LawsuitXRPCryptocurrency IndustryDigital Asset LegislationCelsius CaseGovernment Actions

Description

The episode covers the ongoing Ripple case, where Ripple was sued by the SEC for selling XRP as an unregistered security. The judge ruled that sales of XRP to institutional investors were securities transactions, while retail sales and other transactions were not. The case is still going to trial, but the ruling has already had significant impacts on the cryptocurrency industry. The ruling may be appealed, and there are concerns about its implications for digital asset legislation. The episode also discusses other related cases, industry assessments, and concerns about government actions. The recent Celsius case and potential legislation to address uncertainties in the industry are also covered.

Insights

Ripple Case Impact

The Ripple case has had significant impacts on the cryptocurrency industry, including increased XRP prices and exchanges considering relisting it.

Appeals and Uncertainty

The Ripple case is likely to be appealed, and there may be further appeals to higher courts. This creates uncertainty in the industry.

Industry Concerns

The industry has concerns about government actions, including misusing enforcement resources and targeting the wrong companies.

Legislation and Responsibility

The ripple case may lead to potential legislation to clarify uncertainties in the industry and provide more breathing room for responsible token issuers.

Incompatibility and Relief

There are concerns about the incompatibility between securities law and blockchains, but the Ripple case provides some relief for the industry.

Summary

Transcript

Ripple Case Overview

00:00 - 06:21

The Ripple case is considered one of the most important cases in crypto.
Ripple was sued by the SEC in 2020 for selling XRP as an unregistered security.
The judge ruled that sales of XRP to institutional investors were securities transactions.
Retail sales of XRP were not considered securities transactions because they did not involve direct engagement with Ripple.
Paying employees in XRP and founder sales were also not considered securities transactions.
Certain counts still need to be tried, so the case is still going to trial.
As a result of this ruling, XRP's price has increased significantly and several exchanges are considering relisting it.

Summary Judgment and Appeals

05:57 - 12:24

Summary judgment means both sides agree on the facts and can skip arguing about them.
The court denied summary judgment on the aiding and abetting claim against Mr. Garlinghouse and Mr. Larsen.
There is a question of what remedy the SEC will seek for the institutional sales.
An interlocutory appeal can be taken even when a case is incomplete, but it requires a request within a specific period of time.
The judge affirmed that XRP itself is not necessarily a security, but rather it is the nature of the contract or sale that determines if it constitutes an investment contract.
The judge did not rule on secondary trading platforms, but her ruling suggests that transactions using blind bid-ask would also not fall under an investment contract.
It is likely that this case will be appealed to the second circuit court.
If Ripple appeals, it could take around a year for the second circuit to review the case.
There may be further appeals to rehear in front of the entire circuit or to the Supreme Court.
Settlement seems unlikely given the magnitude of unregistered securities transactions involved in this case.

Impact and Implications

12:04 - 18:47

A judgment has been made regarding $800 million of unregistered securities transactions.
Settlement negotiations between Ripple and the SEC are unlikely to be successful.
The ruling in the case has had an impact on various aspects of the cryptocurrency industry.
The ruling is not binding and will be appealed.
Coinbase and Kraken have concluded that it is safe to list XRP.
The ruling may have implications for digital asset legislation.
There will likely be a lot of uncertainty and hedging from lawyers advising clients in the space.
The SEC may go after exchanges for relisting XRP, but they seem willing to fight back.
Coinbase's case with the SEC is significantly impacted by this ruling.
The judge's opinion in this case could be used as persuasive authority in other cases involving similar issues.
This ruling may affect fundraising and market structure in the cryptocurrency industry.

Comparison with Other Cases

18:42 - 25:52

The judge's opinion suggests that ICOs are not a good thing for issuers.
There are concerns about secondary markets and underwriters in relation to ICOs.
The opinion is questionable enough that it cannot be relied upon for trading or investment strategies.
The SEC is likely to appeal the decision as it goes against their efforts to regulate securities.
Legislative attempts may be made to address the issue before the case concludes.
The XRP case differs from the Telegram case in terms of how they were viewed as securities transactions.
Institutional investors' initial transactions were considered securities, but later open market transactions were not.
Secondary sales on public markets and lack of token registration were concerns in the Telegram case.
The Ripple judgment does not align with the judgment in the LBRY case.
Different judges and slightly different facts lead to different conclusions in similar cases.
The SEC issued a press release celebrating their success, but it received less attention than expected.
The perception of the Ripple ruling varied depending on personal interests and holdings of XRP.
Retail investors argued that this ruling punishes them while failing to protect them.
The SEC may need to take a stronger stance due to the nature of Ripple's token.

Assessment and Industry Impact

25:25 - 32:25

The SEC's case against Ripple seems weak compared to other tokens like Bitcoin and Ether.
There are arguments that can dispute the notion of no reliance in a trade without knowing the counterparty.
Non-financial things, including work, can constitute an investment of money.
Short-term sign: Coinbase and Kraken have listed Ripple.
This ruling is seen as a substantial moment for the industry and a vindication for builders and participants.
The government has had several public losses recently, which may impact their overall strategy.
There is a broad pushback in the US against the administrative state.

Celsius Case and Industry Concerns

32:03 - 39:05

The CEO of a company called Celsius has been arrested and charged with a $4.7 billion fine by the FTC.
The company is insolvent and going through bankruptcy, so the fine will likely not be paid.
The allegations against the CEO include running a fraudulent investment fund and lying about its safety.
There are concerns about the viability of high-yield products in the crypto industry.
Many people in the industry were aware of issues with Celsius before its collapse.
Some believe that government agencies focused on the wrong targets and failed to go after companies with bad intentions.
There was speculation that it took a long time to build a case against Celsius due to the company being in bankruptcy and no immediate emergency.
It is frustrating that agencies went after good actors instead of targeting companies like Celsius, which many knew had problems.

Concerns and Potential Legislation

38:43 - 45:34

There is a lack of substantive information regarding potential risks in the industry.
Consumer protection in the industry has been mostly facade, with action taken only after damage is done.
Enforcement resources have been misused by focusing on decentralized finance (DeFi) instead of addressing alleged activities of bad actors.
The ripple case may lead to more breathing room for responsible token issuers and potential legislation to clarify uncertainties in the industry.
A shoutout is given to a bar owner who is an XRP fan, and a live shopping block happy hour at his bar is suggested.
The question about telegram highlights the incompatibility between securities law and blockchains due to composability issues.

Incompatibility and Industry Relief

45:12 - 47:15

Composability is incompatible with blockchains.
Securities law cannot be composed correctly.
The Ripple case exposes a re-entrancy attack.
Software and law are like oil and water, they don't mix well.
It's too late to queue for the industry.
Ripple lawyers deserve credit, XRP holders can now sell their crypto.
This win vindicates crypto's right to exist in the US.
There are allies for the industry in the US judiciary and Congress.
Crypto has been feeling cornered, this provides some relief.