The Ripple case has revealed the full ambiguity of the country’s laws and regulations regarding the regulation of not only XRP but all cryptocurrencies, which reveals the SEC’s plot to crush the cryptocurrency market.
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Nature hates vacuums according to the principles of physics which is an interesting occurrence given how many federal regulatory agencies love them. Remembering the New Deal, it is now common knowledge that if there is a gap in the regulation of human activity, a federal agency will quickly replace it by using its wide and usually ambiguous powers.
Our vast administrative state is ready to assert itself in every crack, crevice, and crannie that presents a chance for regulatory interference, whether it be the Department of Energy deciding to ban a common type of light bulb or the Environmental Protection Agency setting the maximum amount of water that toilets can use. We are already on course to surpass last year’s record-breaking total of over 74,000 pages of new rules and regulations produced by federal agencies in an effort to fill perceived gaps in our lives.
As frustrating and expensive as endless meddling from Washington bureaucrats can be. Lightbulbs and plumbing are insignificant in comparison to the mayhem that results when an agency jumps the median to rewrite the entire rulebook for an industry to which it is, at most, a casual acquaintance. A little more than a year ago, our organisation raised the alarm about a legal action brought by the “stone-age” SEC bureaucracy against Ripple Labs, an American cryptocurrency business. Leaders in the cryptocurrency business, experts, and academics have come to the unanimous conclusion that the SEC’s action is not only absurd but also very risky during that time.
Imagine the response if a referee issued a penalty for a play that took place 30 minutes earlier. There would undoubtedly be a healthy balance of shock and fury, as well as the strong opinion that the official is arbitrarily and unjustly spoiling the game. The SEC’s case against Ripple is equally arbitrary and irrational, but it raises more serious issues about federal agency overreach and their ability to arbitrarily stretch their tentacles into areas where they have no business, including the billions of assets held by innocent XRP users. The outcome of the case will also significantly affect America’s position in the markets for digital currencies, which are seeing exponential growth.
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The SEC retrospectively ruled XRP to be an unregistered securities in December 2020, making all of its dealings for the prior seven years illegal, including those on secondary markets. The regulator said that Ripple, whose company is based on the usage of XRP as a bridge currency, sold securities despite the fact that since 2013, billions of XRP tokens have been traded among tens of thousands of unrelated individuals. The SEC, not the Commodity Futures Trading Commission (CFTC), should make all regulatory decisions on digital assets, according to Gensler, who has since raised the stakes. With even more hubris, Gensler argues before the court that the SEC is not required to establish rules that are clear, definite, and transparent to provide guidance for traders and holders of digital assets. Gensler basically asserts that the agency can make decisions at its discretion on a case-by-case basis, which is an utterly absurd position.
The SEC’s case against Ripple is incredibly irresponsible, not to mention unfair and devoid of due process. The SEC provided consumers and investors with over a decade’s worth of ambiguous and inconsistent public signals on XRP while billions of tokens traded on secondary markets prior to its case. According to the evidence presented in the lawsuit, the SEC provided Ripple with even more ambiguous instructions in private.
The Ripple case has revealed the full ambiguity of the country’s laws and regulations regarding the regulation of not only XRP but all cryptocurrencies. This is the very situation where Congress needs to intervene and make use of its power to establish a detailed regulatory framework for digital assets. Sen. Pat Toomey (R-PA) accused Gensler of “not sharing with us” the standards the SEC is using to regulate cryptocurrency during a Senate Banking Committee hearing this month. Gensler was questioned about his lackadaisical and uneven treatment of cryptocurrency. Even though both XRP and Bitcoin are primarily used in commercial transactions and not as investments, Gensler provides hazy explanations as to why the SEC views XRP as a security while Gensler views both as commodity. Gensler raises the possibility of having complete jurisdiction over all Ethereum network transactions anywhere in the globe in a recent lawsuit against a market influencer.
More than 73,000 XRP token owners, who were directly damaged by the SEC’s claim that all XRP tokens are investment contracts in Ripple, were given amici status by the court in the lawsuit in October of last year. When the SEC’s action destroyed the value of their possessions, according to their attorney John Deaton, the vast majority of them had no awareness of or relationship to Ripple. Deaton describes the SEC’s legal theory as “dangerous” and a threat to all consumers and owners of digital assets.
In addition to establishing a fair and just standard for the protection of cryptocurrency investors, the outcome of the SEC case against Ripple is crucial because it will serve as a test case for establishing restrictions intended to prevent overreach by federal agencies seeking to increase their power at the expense of efficiency. Because of its effectiveness, adaptability, and immense utility in the financial markets, cryptocurrency is popular and on the rise. However, these advantages can simply be eliminated by overbearing and intrusive regulation. The final judge of these matters is Congress, which urgently has to take action to establish a clear framework for crypto regulation and to curtail the SEC’s authority to occupy areas where it has no business being.