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Ripple Labs may be about to hand the crypto industry a seismic win in the debate over the classification of cryptos as a commodity or a security. Meanwhile Ripple Labs is doing the whole world a great disservice.
Market Snap
Market Wrap
The crypto holding pattern remains strong. The only certainty is that this will change, and likely change soon. The leveraged children are building shorts again, which always gives me a warm comfortable feeling.
Curious Cryptos’ Commentary — XRP (Ripple)
June 13th is the expected date for the unsealing of what has become known as the Hinman documents in the legal battle between Ripple Labs and the SEC (Securities and Exchange Commission). The SEC maintains that XRP — along with all other cryptos except BTC — is a security. Breaking securities laws is no minor matter in the US, leading to huge fines and potentially lengthy prison sentences.
The Hinman documents relate to internal emails in the lead up to a speech made by Bill Hinman in 2018 when as SEC Director of Corporation Finance he declared ETH was not a security.
Proponents of XRP — who include a small minority who are both loud and obnoxious in response to any criticism of XRP — have long maintained that Hinman was compromised in his role as SEC Director whilst simultaneously remaining a partner in a law firm that performed work for the Ethereum Foundation.
I have never understood this line of argument. If Hinman was biased in favour of ETH that would suggest that his claim that ETH was not a security is false. Proving ETH is a security would not help XRP in its legal battle. Ask this question of the XRP army and you will not get a pleasant answer.
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Until now both XRP and the SEC have had access to the documents. Both claim that their position is supported by these documents. However, the SEC has long tried to keep them secret from public view, whilst Ripple Labs have taken the opposite stance.
We may have just seen a glimpse of what might be in the Hinman documents.
The Howey Test is used to assess whether a financial product is a security or not (https://crypto.marketswiki.com/index.php?title=Howey_Test). Some may argue that case law from 1946 may not be entirely appropriate to judge cryptos in 2023, but the SEC is not buying that. Nor, to date, is Congress.
Public documents that have been provided to the courts in the SEC vs Ripple Labs case include emails suggesting that internally the SEC concluded that XRP failed the Howey test and is therefore not a security. As reported in cryptopolitan:
“The attorney further points out that an exhibit from SEC emails, numbered 230, indicates that it is “more likely than not” that XRP will not be considered a security and, therefore, should not be subject to regulatory oversight by the SEC. The exhibit in question, part of the SEC emails, contradicts the charges brought against Ripple.”
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If this is the conclusion the judge comes to, it will be a major blow to the credibility of the SEC, and very positive for the crypto industry.
Curious Cryptos’ Commentary — Ripple Labs
Ripple Labs, the issuer of XRP and the corporate body subject to the SEC action above has announced a new product, and it is one that weighs heavily in our hearts:
https://ripple.com/solutions/central-bank-digital-currency/
Yep, you read that right. Ripple Labs has developed a suite of tools to standardise the issuance of CBDCs (Central Bank Digital Currencies).
CBDCs are not, and never will be, cryptos. There is an argument that XRP itself is not a crypto, but we will come back to that another day, giving Ripple Labs a track record in launching products that can only claim to be cryptos.
The Republic of Palau has signed up. Surangel Whipps Jr, President of the Republic of Palau, said:
“Partnering with Ripple to help create our national digital currency is part of our commitment to lead in financial innovation and technologies, which will provide the citizens of Palau with greater financial access.”
I suspect most of us would need to Google Palau. It turns out to be an archipelago of 500 islands in the western Pacific Ocean with a recorded population of just 18,024 in 2021, according to the World Bank.
So what, you might be thinking. Palau is immaterial in the context of global finance, and there you would have a point. But you would also be missing a key factor.
The official currency of the Republic of Palau is the US dollar.
Compliance Stuff
Trigger alert warning.
If any reader feels that they are “literally shaking” (a claim made by a Durham student who cannot cope emotionally — and certainly not intellectually — with a different point of view expressed by Rod Liddle) after reading my commentary, then I can only suggest you don’t read, or don’t shake. It’s up to you.
Cryptos — none of my commentary should be seen as a recommendation to get involved in cryptos. I might be talking complete nonsense without knowing it. Any crypto investments must be viewed as extremely high risk and treated as if they are worth zero until sold.
Stocks — just to make it clear this is not a stock advisory service. The CCC team does not provide financial advice in any way at all. Any reference to asset prices in this commentary is there to simply give context to the commentary and to give colour to the performance of certain stocks related to cryptos.
For the avoidance of doubt, this newsletter is not an incitement to buy cryptos, buy stocks, or even to sell family members in the hope of buying cryptos or stocks.
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