The SEC has just started launching a case against Ripple. The SEC considers Ripple to be an unregistered security, but it has been illegally sold since 2013 until today. So it sued Ripple, its CEO Brad Garlinghouse and co-founder Chris Larsen.
The SEC has apparently been systematically regulating the cryptocurrency market
The SEC's prosecution of 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 commonly known as the Howey Test. If an encrypted digital currency or pass meets the Howey Test, then it should be identified as a security product. The way it works also needs to operate in accordance with securities regulations. On the one hand, the SEC continues to emphasize its basic position in this regard, and on the other hand, it is also constantly taking regulatory measures to prosecute projects in the market that it believes violate the rules. Among the most notable cases are its successful lawsuit against Telegram in October 2019, its out-of-court settlement with EOS in September 2019, and most recently its lawsuit against Kik. In addition to these more influential cryptocurrencies, the SEC has also been prosecuting other relatively small-scale violations in the market, such as the recent punishment of ShipCoin. Due to the SEC’s stance on this and its ongoing measures, the number of non-compliantly generated tokens in the US market has decreased significantly. But this has not been eradicated, and non-compliant projects continue to appear in the market. But now it appears that the SEC is taking a systematic approach to address non-compliant projects in the marketplace.
If we rank cryptocurrencies by market capitalization, the SEC has indicated that Bitcoin and Ethereum, ranked first and second, are not securities. And this attitude shows that the chronological order is Bitcoin's first and Ethereum's later. Now that the SEC has begun to sue Ripple, which ranks third in market value, it seems that the SEC is addressing the influential cryptocurrencies in the market one by one.
The steps taken by the SEC are actually eliminating regulatory uncertainty. This helps encrypted digital finance develop within a more regulated range. Since the attributes of encrypted digital currencies such as Ripple have not been clearly stated by regulators before, various innovations in this area in the market have the risk of violations. Now that the SEC has clearly stated its position on Ripple, this will help the market to 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 securities attributes and instrument 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 properties as well. And there is this tool attribute that applies it in the market (although it is not as widely promoted by Ripple itself). So Ripple is not just a traditional securities product. Due to the innovative development based on blockchain technology, such certificates with multiple attributes or different attributes in different periods will continue to appear. How to regulate such tokens in relevant regulations is a huge challenge. Obviously in this regard, the market has gone ahead. Relevant regulations have not yet been changed accordingly. The SEC's lawsuit against Ripple may be able to promote the revision of US securities laws in this regard.
Implications for Bitcoin and Ethereum
The result of the SEC's prosecution of Ripple is yet to be determined. It is possible to completely ban its distribution like Telegram, or to reach some kind of out-of-court settlement like with EOS. Of course, there is also the chance that the SEC will lose the lawsuit, although this chance is very small. But in general, Ripple may not be traded in circulation as it is now, which means that the amount of trading funds in the market flowing into Ripple will decrease. Some of this transaction volume flows into bitcoin and ethereum. In addition, since the SEC will definitely deal with the more influential encrypted digital currencies in the market step by step. Some of them will definitely withdraw from the market and no longer circulate. Therefore, the market concentration of encrypted digital currency will further increase. More money will flow into Bitcoin and Ethereum. The price of Bitcoin and Ethereum will therefore increase.
Judging from the development trend of encrypted digital assets, more new digital assets will be generated in a centralized manner in the future. An example of this is security tokens. However, tokens that are completely distributed in a distributed manner like Bitcoin and Ethereum have a relatively small chance of appearing. 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.
