The crypto market has proved quite slippery to regulators in the last year. It seems government agencies, especially in larger countries like the U.S., are having trouble pinning down exactly what the market needs. One way to start this regulating of the market is simply to decide on definitions for crypto assets and market concepts. The U.S. Securities and Exchange Commission is helping to kick off this task as it winds down its Ripple (XRP-USD) lawsuit. The Ripple crypto court case could help greatly in addressing preliminary questions pertaining to crypto legal infrastructure.
Regulating the market is a careful balancing act. Agencies must protect investors, punish criminals and do it all without stifling innovation in the space. So, there’s no wonder why any sort of legislation is taking a while to make its way up the ladder. Politicians themselves have only recently begun taking up notable interest in the space, with most aligning in pro- or anti-crypto camps within the last year.
The biggest debate taking place ahead of broader regulatory measures is over which cryptos count as currencies and which count as commodities. Since cryptocurrencies can operate on completely different models from one another, it’s not an easy question to answer. By sorting assets into these two categories, though, the U.S. government can hand off regulatory responsibilities off to either the SEC or the Commodity Futures Trading Commission (CFTC).
There are ways to parse investments that already exist; take the Howey test, for example. This test is being referenced in crypto court cases, but one wonders whether the approach is appropriate for the crypto space as a unique, new investing venue. Soon, though, there might be a new “test” for determining the security-versus-currency status of different coins and tokens.
Ripple Crypto Court Case Could Finally Bring Precedent to Crypto
The Ripple crypto court case is one of the most robust legal battles regarding cryptocurrency in the U.S. For two years now, the SEC and Ripple Labs have been duking it out. They are arguing over whether Ripple completed an illegal, unregistered securities offering by selling its XRP coin. After all this time, the suit might finally be closing out. Hopefully, it will help to answer a pressing question for the industry.
The court’s ruling over this case will be massive for crypto legislation. If it rules that Ripple is a currency, the company will win the case and be able to continue its operations without the hang-ups it currently faces. If the judge deems it a security, though, it will face big financial penalties. It will also provide the SEC with ample evidence to go after hundreds of other cryptocurrencies for the same crimes. It could effectively make for a crypto version of the Howey test.
It’s a case that investors and crypto companies themselves are watching over closely. And this week, it looks like it’s finally coming to an end. Both parties have filed with the court for a summary judgment. Both parties filed these documents separately over the weekend. If approved, the bodies could see a federal judge make an immediate ruling over the case, bringing an end to the suit nearly two years from its start.
However, it could also lead a judge to dismiss the case entirely. While good for Ripple, and good for any crypto projects that would’ve been endangered by a ruling in favor of the SEC, this could be a big problem for regulators looking for a definitive ruling to help set a precedent for regulation.
On the date of publication, Brenden Rearick did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.