The SEC has just begun to initiate a prosecution against Ripple. The SEC believes that Ripple is an unregistered security, but it has been illegally sold since 2013 until today. So it sued Ripple and its CEO Brad Garlinghouse and co-founder Chris Larsen.
The SEC has obviously been systematically regulating the encrypted digital currency market
The SEC’s lawsuit against Ripple was expected. The design of most encrypted digital currencies in the current market is very similar to securities products. In order to regulate this market, the SEC has been constantly emphasizing the definition of securities, which is usually called the Howey Test. If an encrypted digital currency or token meets the Howey Test, then it should be recognized as a security product. Its mode of operation also needs to operate in accordance with securities laws and regulations. On the one hand, the SEC keeps emphasizing its basic position in this regard. On the other hand, it also continuously adopts regulatory measures to prosecute items in the market that it considers to be illegal. The most famous cases are the lawsuit it initiated and won against Telegram in October 2019, the out-of-court settlement reached with EOS in September 2019, and the recent lawsuit against Kik. In addition to these relatively influential encrypted digital currencies, the SEC has also been prosecuting other relatively small-scale violations in the market, such as the recent penalties on ShipCoin. Due to the SEC’s position in this regard and its continuous measures, the number of non-compliant tokens in the US market has been greatly reduced. However, this has not been eradicated, and non-compliant projects continue to appear in the market. But now it seems that the SEC is taking a systematic approach to resolve non-compliant items in the market.
If we sort by the market value of encrypted digital currencies, the SEC has indicated that Bitcoin and Ethereum, which rank first and second, are not security products. And this attitude shows that the chronological order is Bitcoin first and Ethereum second. Now that the SEC is suing the third-ranked Ripple in market value, it seems that the SEC is solving the influential cryptocurrencies in the market one by one.
The measures taken by the SEC are actually to eliminate regulatory uncertainty. This will help the development of encrypted digital finance in a more regulated scope. Since the attributes of encrypted digital currencies such as Ripple have not been clearly expressed by the regulatory agencies, various innovations in this area in the market are at risk of violations. Now that the SEC has clearly stated its position on Ripple, this will help the market have a clearer regulatory attitude, and the uncertainty in this aspect in the market will therefore be reduced.
The market needs more clear and helpful securities regulations
Ripple has both security attributes and tool attributes. For the SEC, since Ripple has the attributes of securities, it belongs to the field of SEC supervision. Therefore, it is legal for the SEC to take regulatory measures against Ripple. But Ripple does have instrumental attributes. And there are also attributes of this tool in the market (though not as widely promoted by Ripple). So Ripple is not just a traditional securities product. Due to the development of innovation based on blockchain technology, such tokens with multiple attributes or different attributes in different periods will continue to appear. How relevant laws and regulations regulate such tokens is a huge challenge. Obviously in this regard, the market is already ahead. Related laws and regulations have not been changed accordingly. The SEC’s lawsuit against Ripple may be able to promote amendments to the US securities laws in this regard.
Impact on Bitcoin and Ethereum
The result of the SEC’s lawsuit against Ripple cannot be determined. It is possible to completely ban its issuance like Telegram, or to reach some kind of out-of-court settlement like EOS. Of course, there is also a chance that the SEC will lose, although this chance is very small. But in general, Ripple may not be circulated as it is now, which means that the amount of trading funds flowing into Ripple in the market will decrease. Part of this transaction volume will flow to Bitcoin and Ethereum. In addition, because the SEC will gradually deal with the more influential encrypted digital currencies in the market. Some of them will definitely withdraw from the market and no longer circulate. Therefore, the market concentration of encrypted digital currencies will further increase. More funds will flow into Bitcoin and Ethereum. The prices of Bitcoin and Ethereum will therefore increase.
From the perspective of the development trend of encrypted digital assets, more new digital assets will be generated in a centralized manner. For example, security tokens are such. The probability of occurrence of tokens generated in a distributed manner like Bitcoin and Ethereum is relatively small. Therefore, Bitcoin and Ethereum are the most representative digital assets among assets generated in a distributed manner. Its uniqueness will be more prominent, and its value will therefore increase.
