Ripple Labs Wins A Landmark SEC Ruling and Blackrock is Bullish on Cryptocurrency-based Investment Vehicles

 AI has crushed cryptocurrency in the recent technology hype cycle, garnering VC and mainstream media attention fast on the heels FTX Sam Bankman-Fried debacle which tarnished the entire crpytocurrency ecosystem.  What is going on with crypto you may ask?   

Two recent, major developments in the crypto space broke through in the last few weeks and are worth our readers attention:  The first: Ripple Labs notches landmark win in SEC case over XRP cryptocurrency On the Ripple verdict, OODA CTO Bob Gourley notes that there is “a lot of talk (at least in the crypto world) about this lawsuit and its implications for not just cryptocurrency but the modernization of the financial sector. ”  The second major development was the The iShares unit of BlackRock filing paperwork with the U.S. Securities and Exchange Commission (SEC) on June 16 for a spot bitcoin exchange-traded fund (ETF). 

These announcements refocused investors, the market and the crypto community  – and align with our research and editorial stance that “the long view” on crypto is that it will eventually emerge as a global currency standard.   

In this post, we have compiled some of the best in class coverage and insights on both the Ripple verdict and Blackrock SEC filing.  Analysis of the crypto space can be filled with decentralized finance and centralized finance jargon and technical mechanics.  Luckily, of the various industry sectors and emerging technology spaces we track, the journalists and analysts who cover cryptocurrency are really impressive – and produce really sharp, insightful content on the subject. 

“What is XRP Cryptocurrency?”  (Generated with OpenAI’s ChatGPT) 

XRP is a digital cryptocurrency that operates on the XRP Ledger, an open-source blockchain technology developed by Ripple Labs. XRP was created to facilitate fast, low-cost international money transfers and serve as a bridge currency between different fiat currencies. Here are some key aspects of XRP:

1. Purpose and Use Case: XRP aims to enable efficient and cost-effective cross-border payments. It serves as a digital asset that can be used to facilitate transactions and transfer value between different currencies. Its primary use case is to provide liquidity and facilitate real-time settlement within Ripple’s payment and remittance network.

2.  Ripple Network and Interledger Protocol: XRP is integrated into Ripple’s suite of products and solutions. The Ripple network, which includes RippleNet, uses XRP as a bridge currency to facilitate instant transfers of value between different fiat currencies. It leverages the Interledger Protocol (ILP) to enable interoperability across different payment networks.

3. Supply and Distribution: XRP has a maximum supply of 100 billion tokens, as determined by the protocol’s design. A significant portion of the XRP supply is held by Ripple Labs, the company behind XRP, although Ripple has committed to placing a portion of its holdings in escrow to address concerns of potential market manipulation.

4. Consensus Mechanism: Unlike some other cryptocurrencies like Bitcoin, XRP does not rely on a proof-of-work (PoW) consensus mechanism. Instead, it uses a consensus protocol called the XRP Ledger Consensus Protocol (XRPLCP). This protocol relies on a network of trusted validators to validate transactions and maintain the integrity of the XRP Ledger.

5. Speed and Scalability: XRP is designed to offer fast transaction settlement times and scalability. The XRP Ledger has the capacity to handle a high volume of transactions, with settlement times typically ranging from a few seconds to a few minutes. This makes XRP attractive for use cases where speed and efficiency are important, such as cross-border payments.

It’s important to note that XRP has faced regulatory scrutiny in some jurisdictions, including the ongoing legal dispute with the U.S. Securities and Exchange Commission (SEC). The outcome of the lawsuit and regulatory decisions can impact the future of XRP and its adoption.  As with any cryptocurrency or investment, it’s essential to conduct thorough research and understand the risks involved before considering any financial involvement with XRP or any other digital asset.

“What are the Implications if Ripple Wins its Lawsuit filed with the SEC over XRP Cryptocurrency?” (Generated with OpenAI’s ChatGPT) 

The outcome of the lawsuit between Ripple Labs (the company behind XRP) and the U.S. Securities and Exchange Commission (SEC) could have several implications for the cryptocurrency industry. While I can provide an overview, it’s important to note that I do not have access to the latest updates or knowledge of the ongoing legal proceedings. Therefore, the information provided here is based on the situation as of my last knowledge update in September 2021.

1. Regulatory Clarity: A favorable ruling for Ripple could potentially provide clarity on how XRP and other similar cryptocurrencies are classified under U.S. securities laws. It could establish a precedent that distinguishes XRP from being considered a security, which may have broader implications for other cryptocurrencies. Clarity in regulatory classification could help shape the regulatory landscape for the industry.

2. Market Confidence: If Ripple wins the lawsuit, it may boost market confidence in XRP and Ripple as a company. The removal of regulatory uncertainty could lead to increased adoption and investment in XRP, potentially driving up its price. It could also make Ripple’s technology more attractive to financial institutions and facilitate partnerships for its blockchain-based payment solutions.

3. Broader Ripple Effect: A positive outcome for Ripple could potentially influence how other cryptocurrencies and blockchain projects are evaluated by regulators globally. The ruling could set a precedent for how regulators approach and interpret similar cases, providing insight into whether certain cryptocurrencies are considered securities or not.

4. Impact on the SEC: If the SEC loses the case, it may prompt the regulatory body to review and potentially revise its approach to regulating cryptocurrencies. It could influence how the SEC oversees other projects in the future and shape its enforcement actions and policies related to digital assets.

5. Legal Precedent: The ruling could establish legal precedents that guide the behavior of other companies and projects within the cryptocurrency industry. It may provide more clarity on what activities and practices could potentially violate securities laws, helping industry participants navigate compliance requirements more effectively.

It’s important to recognize that the outcome of the lawsuit can be influenced by various factors, and its impact will depend on the specifics of the ruling. Therefore, it’s advisable to follow the latest news and legal developments regarding the Ripple-SEC lawsuit for the most accurate and up-to-date information.

Ripple Labs notches landmark win in SEC case over XRP cryptocurrency

• Ripple Labs Inc did not violate federal securities law by selling its XRP token on public exchanges, a U.S. judge ruled on [July 13th], a landmark legal victory for the cryptocurrency industry that sent the value of XRP soaring. 
• XRP was up 75% by late afternoon on Thursday, according to Refinitiv Eikon data.
• The ruling by U.S. District Judge Analisa Torres was the first win for a cryptocurrency company in a case brought by the U.S. Securities and Exchange Commission.
• The SEC won a partial victory as Torres found the company’s $728.9 million of XRP sales to hedge funds and other sophisticated buyers amounted to unregistered sales of securities.
• Torres ruled that Ripple’s marketing aimed at institutional investors made clear the company “was pitching a speculative value proposition for XRP” that depended on company efforts to develop the blockchain infrastructure behind the digital asset.
• While the decision is specific to the facts of the case, it likely will provide ammunition for other crypto firms battling the SEC over whether their products fall under the regulator’s jurisdiction.
• It is possible for the ruling to be appealed once a final judgment is issued, or if the judge allows it before then.  The SEC spokesperson said the regulator was reviewing the decision.
• Ripple Chief Executive Brad Garlinghouse in an interview called the ruling “a huge win for Ripple but more importantly for the industry overall in the U.S.”
• Coinbase (COIN.O), the largest U.S. crypto exchange, said it would again allow trading of XRP on its platform.  The SEC had accused the company and its current and former chief executives of conducting a $1.3 billion unregistered securities offering by selling XRP, which Ripple’s founders created in 2012.
• The case has been closely watched in the cryptocurrency industry, which disputes the SEC’s assertion that the vast majority of crypto tokens are securities and subject to its strict investor protection rules. The agency has brought more than 100 enforcement crypto actions, claiming various tokens are securities, but many of those have ended in settlements.
• In the few cases that have gone to court, judges have agreed with the SEC that the crypto assets at issue were securities, which unlike assets such as commodities are strictly regulated, must be registered with the SEC by their issuer and require detailed disclosures to inform investors of potential risks.
• Torres ruled that Ripple’s XRP sales on public cryptocurrency exchanges were not offers of securities under the law, because purchasers did not have a reasonable expectation of profit tied to Ripple’s efforts.
• Those sales were “blind bid/ask transactions,” she said, in which buyers “could not have known if their payments of money went to Ripple, or any other seller of XRP.”
• Torres applied a U.S. Supreme Court case that said “an investment of money in a common enterprise with profits to come solely from the efforts of others,” is a kind of security called an investment contract.  (1)

“Why would it be Significant if the Company BlackRock (BLK) Started to Make Major Investments in Cryptocurrency?” (Generated with OpenAI’s ChatGPT) 

If the company BlackRock, which is one of the world’s largest asset management firms, were to make major investments in cryptocurrency, it would have several significant implications. Here are a few reasons why it would be noteworthy:

1. Legitimacy and Mainstream Acceptance: BlackRock’s entry into the cryptocurrency market would signal a level of legitimacy and mainstream acceptance for cryptocurrencies. As a highly respected and influential financial institution, BlackRock’s endorsement could encourage other institutional investors and traditional financial institutions to consider investing in cryptocurrencies, potentially leading to wider adoption and increased market confidence.

2. Market Influence: BlackRock manages a substantial amount of assets on behalf of its clients. Its investment decisions can significantly impact markets and asset prices. If BlackRock were to allocate a significant portion of its assets to cryptocurrencies, it could potentially drive up demand and prices, bringing increased attention and liquidity to the cryptocurrency market.

3. Institutional Adoption: Institutional investors have historically been cautious about cryptocurrencies due to concerns about volatility, regulatory uncertainty, and infrastructure limitations. BlackRock’s involvement could serve as a catalyst for other institutional investors to follow suit and allocate funds to cryptocurrencies. This increased institutional adoption could contribute to a more mature and stable cryptocurrency market.

4. Product Offerings: BlackRock could potentially create investment products and funds centered around cryptocurrencies, making them more accessible to retail investors. This could include crypto-based exchange-traded funds (ETFs) or other structured products. Such offerings from a company like BlackRock could attract a wider range of investors and potentially increase overall market liquidity.

5. Regulatory Attention: BlackRock’s significant involvement in cryptocurrencies could draw the attention of regulators and policymakers. This could lead to a more robust regulatory framework, enhanced investor protection, and greater clarity around the legal and compliance aspects of cryptocurrencies. Clearer regulations could further encourage institutional participation and reduce some of the existing barriers to entry.

It’s worth noting that these are potential outcomes, and the actual impact would depend on various factors, including the extent of BlackRock’s investments, market conditions, and regulatory developments. However, given BlackRock’s stature in the financial industry, any major move into cryptocurrencies by the company would undoubtedly have significant implications for the broader cryptocurrency ecosystem.

BlackRock’s iShares Files Paperwork for Spot Bitcoin ETF (CoinDesk) 

The SEC has rejected numerous attempts by other fund companies to launch a spot bitcoin ETF.

Preceded Only By ARK Invest/21 Shares, BlackRock Is In Line For A Bitcoin ETF (ARK Invest) 

In the last ten days, BlackRock, the world’s largest asset manager, filed¹ an application for a Bitcoin ETF with the Securities and Exchange Commission (SEC) to be listed on the Nasdaq. One week after the SEC sued² two of the industry’s largest exchanges—Coinbase and Binance—for offering unregistered securities, the investment behemoth selected Coinbase as its ETF custodian.

While it looks much like previous ETF filings, BlackRock worked with Nasdaq to distinguish its application with a unique surveillance-sharing agreement³ designed to prevent the risk of bitcoin-related market manipulation. Based on our research, however, other applicants will be able to amend their filings with similar agreements at little cost.

In our view, BlackRock’s decision to file for a Bitcoin ETF signals that large institutional players are positive on the long-term outlook for the digital asset. Now that BlackRock has engaged with the SEC, other issuers like Invesco, WisdomTree, Valkyrie, and Bitwise⁴ are throwing their hats back into the ring.

On April 25, 2023, ARK and 21 Shares filed an application with the SEC for a Bitcoin ETF that now is the only one ahead of BlackRock’s. In our view, BlackRock’s entry is a promising step toward the acceptance of a Bitcoin ETF and could be a significant turning point in bitcoin’s path to institutional acceptance. (3)

Sources:  

[1] Kharif, O. and Greifeld, K. 2023. “Bitcoin Jumps on Speculation BlackRock ‘May Know Something.’” Bloomberg.
[2] Stempel, J. et al. 2023. “US tightens crackdown on crypto with lawsuits against Coinbase, Binance.” Reuters. 
[3] Allison, I. and Braun, H. “BlackRock May Have Found Way To Get SEC Approval For Spot Bitcoin ETF.” Coindesk.
[4] Light, J. 2023. “Hope for a Bitcoin ETF Gain Steam. 2 Reasons It Might Get Approved.” Barron’s. 

BlackRock CEO Larry Fink Says Bitcoin Could ‘Revolutionize Finance’ (CoinDesk

What Next?

The Future of Crypto Legislation 

Gary DeWaal, an attorney at Katten Muchin Rosenman, said the ruling should help Coinbase in fighting its own SEC case.  The market reaction indicates the ruling is a “tremendous event for the industry,” he said.  Both the Ripple and Coinbase cases focus on registration requirements and whether certain digital assets are securities under U.S. law. The crypto industry has called for legislation to provide clear rules for tokens, and the ruling brought new calls for Congress to clarify the status of digital assets.  House of Representatives Majority Whip Tom Emmer, a Republican, in a post on Twitter said the ruling established that “a token is separate and distinct from an investment contract it may or may not be part of.  Now, let’s make it law,” he said.  (1)

Ripple Labs Ruling Throws U.S. Crypto-Token Regulation into Disarray

Preston Byrne, a CoinDesk columnist, penned an opinion piece on the Ripple verdict addressing the road ahead: