XRP v. SEC: Judgment Day Approaches for all of Crypto

Say what you want about the XRP Army, if you own crypto, you should be pulling for XRP’s army of lawyers. The SEC v. Ripple Labs has been dragging on since December of 2020. In a surprising motion filed last week, Ripple Labs (creators of XRP) has asked for summary judgment of their case. In other words, no trial, no jury. Instead, one judge will weigh the Ripple written argument vs. the SEC’s written argument. At stake is MUCH MORE than the fate of XRP’s token price. Summary judgment day will decide if ALL cryptocurrencies are classified as assets or securities in the US. 

The distinction between an asset and a security has major regulatory implications. Securities are regulated by the SEC; the reporting and auditing bar for securities is very high. Exchanges that are authorized to operate in the US will have to go through many more hurdles to offer securities to their customers. In contrast, cryptocurrencies have been treated like assets since 2009 in the US. Assets are under the regulatory umbrella of the FTC and are much more loosely controlled. 

The context for this legal battle is a raging bear market and signs from the Fed, SEC, Biden administration and Congress that the US government wants to formalize the way it deals with digital assets. This regulatory FUD has contributed to pessimism about prices. However, Ripple’s legal defense may be the best thing to happen to crypto in 2022–it is a ray of hope amidst clouds of Congressional hearings, algo collapses, interest rate rumblings and global recession.

Ripple has made a valiant argument that classifying XRP as a security is totally against legal precedent. In their written arguments, Ripple’s lawyers tear apart the SEC’s loose interpretation of the law: precedent demonstrates all laws must be interpreted according to the definitions used at the time laws were written. This is why Ripple’s legal brief has an exhaustive discussion of “investment contracts.” The SEC contends Ripple’s employees made these contracts when they publicly shared optimism for XRP’s price action. Thus, the SEC claims XRP is a security because of this verbal “investment contract.”

Team Ripple coolly shreds this argument to pieces. Going all the way back to the 1920s, in every case where “investment contracts” are mentioned, there is a literal physical contract that has been signed by both parties within the trial. This is a major discovery. Beyond the existence of a physical document, there are important clauses that must be considered. In the precedent-setting contracts, sellers explicitly promise that their efforts will deliver value to the buyers. Nothing like these explicit, written promises exist in SEC v. Ripple Labs. Therefore, the actual letter of the law is clearly in Ripple’s favor. 

If Ripple wins this case, an important precedent will be set for every cryptocurrency. All cryptos will be seen as assets in the eyes of US law. No matter what laws Congress conjures, no matter what Executive Orders encroach on the industry, this critical definition will not change. Ripple CEO, Brad Garlinghouse, expressed optimism for his case and distrust of the SEC’s intentions. Given a checkered legal history filled with pumps, dumps and furtive deals, it would be a supreme irony if Ripple Labs became the saviors of the industry! Only time will tell: experts suggest that the final decision of this case will come in the next few months.