The SEC’s ongoing legal battle with Ripple over its XRP token is that it is overreaching to regulate the crypto space while leaving more pressing issues such as the Sam Bankman-Fried. Focusing on Ripple could be a concerning precedent for future digital asset regulations in the U.S.
This battle between the US Securities and Exchange Commission and Ripple Labs is so important in the crypto world that many are concerned with the regulations by the U.S. government toward its digital assets.
SEC’s focus on Ripple while overlooking bigger issues
Fox Business Reporter Charles Gasparino was critical of other high-profile cases with Sam Bankman-Fried, but the SEC’s action against Ripple and its native cryptocurrency, XRP, got attention.
Gasparino argues that the SEC is focusing on Ripple, which may be irrelevant, especially since bigger fish (Sam Bankman) are floating in the finance world. This case has gone far beyond Ripple and is bound to rewrite how the U.S. will continue to regulate its cryptocurrencies from now on.
In an interview he said, Ripple Labs and Chief Executive Officer Brad Garlinghouse feel the SEC went too far. They consider the case filed in December 2020 not only an attack on Ripple but also on the cryptocurrency industry at large.
Garlinghouse has also voiced his criticism of the SEC, arguing that the case will be a bad precedent for the entire industry. He further argued that the SEC does not know how to regulate cryptocurrency and that it does not appreciate the distinction between digital assets and others.
Ripple vs. SEC
Ripple reportedly stated its frustration at the SEC’s failure to provide clear guidance on what a company operating in the space of cryptocurrencies and related companies should do in the regulations.
Ripple partially won in the court judgment made in 2023 since it ruled that XRP sold on secondary markets cannot be considered a security. The judgment separates XRP from other traditional securities transactions and brings great victory to Ripple.
However, the court held that XRP’s direct sales to institutional investors are securities transactions, further pointing to the complexity of the case and the differing nature in which XRP is applied in different contexts.
There is an argument that digital assets like XRP must be treated exactly the same way as the real securities inside, with general grounds that protect investors from fraud. Gary Gensler is the SEC chair then. Mr. Gensler maintains that the crypto marketplace should follow securities laws. To him, XRP, among others, has a duty to comply with securities laws for the protection of investors.
In fact, the statements released by the company in 2021 have Gensler referring to Bitcoin and Ethereum as commodities but many other tokens and cryptocurrencies as likely being securities and therefore subject to the regulations.
According to the SEC, Ripple sales of XRP should be considered securities, whether these are institutional or retail sales, and therefore fall within the same rules of sales that apply to stock and bonds.
This being the case, the greater conversation is about how the US government should regulate cryptocurrency. Critics have pointed out the aggressive stance that the SEC has taken towards Ripple.
