Will Ripple vs. SEC turn the tide?

The regulatory loop is tightening around the crypto market. In the US, voices from lawmakers calling for stronger oversight of Bitcoin, Ethereum and Co. have grown louder in the past few days and weeks. In addition to the macroeconomic headwinds, the sometimes nebulous statements from the regulatory authorities are also depressing.

However, the glass can also be seen as half-full in this regard. For innovation-promoting laws in the United States, there is hope for free development of the new technology. With the right regulation, cryptocurrencies would become a legitimate and large-scale investment for institutional investors.

There are currently a number of events in the United States that could have a lasting impact on the price of the crypto sector. A positive outcome on the regulatory issue would be a potential catalyst for the next crypto bull market.

Ripple vs. SEC: Positive court decision in sight?

In particular, the financial regulator SEC has created a constant stir with its rather vague classification of certain cryptocurrencies as securities. With its lawsuit against the payment service provider Ripple, the US Securities and Exchange Commission is waiting for a precedent for a cryptocurrency to violate the Securities Act. An SEC victory could pave the way for a wave of more lawsuits against other crypto projects. Even the second largest cryptocurrency, Ethereum, would not be spared.

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In Ripple vs. The SEC case is expected to have a verdict soon. However, the company from San Francisco has braved it so far, repeatedly reaping minor successes. Crypto influencer “BitBoy” is even confident that the SEC may have given up on Ripple by now.

Ripple, which in the crypto space is seen more as a branch of the TradFi (Traditional Finance) sector, unexpectedly represents a ray of hope in the bear market. In anticipation of a possible victory for Ripple, the XRP price has increased in recent weeks, contrary to the general market direction, increased significantly.

Suppose the SEC fails to classify a relatively centralized blockchain company (and the fourth largest crypto project, excluding stablecoins) as a security. Then the authority would lack a decisive basis for further demands. This would be a huge relief to all other, far more decentralized crypto projects. And a bit more security for institutional investors.

Regulation by enforcement

So far, only Bitcoin has been an option for businesses and institutions as a general crypto investment. The unsettled regulation of the sector seems to be too vague for many. So far this has looked like a patchwork quilt in the US. Authorities are increasingly inclined to regulate by enforcement, as opposed to an innovation-enhancing “regulation by a set of rules”.

In February, US President Joe Biden signed an executive order regulating crypto. On September 16, a fact sheet was presented as the first overview. However, this still sounds quite restrictive.

They talk about “responsible development of digital values”. One thing is clear: its bad reputation continues to precede the sector and also affects the legislators. The SEC, CFTC and an alphabet soup of other agencies are therefore mandated to “aggressively pursue investigation and enforcement of illegal practices in the digital asset sector.”

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And they are taking action: The SEC has trolled the sector for a long time. The head of the authority, Gary Gensler, considers many cryptocurrencies to be illegally issued securities and is pushing for more toughness on digital assets.

For some in the crypto sector, however, the accusation by the Financial Supervisory Authority for Futures and Options Markets (CFTC) against Ooki DAO may have felt like a stab in the back. So far, the authority has been quite moderate in its actions towards the sector. With the latest ruling, she is taking offensive action against every single member of the DAO.

It is accused of offering illegal leverage and margin trading. The decentralized and autonomous organization is not recognized as such. Here, too, a crypto-specific set of rules was missing as a basis for the trial.

Good regulation, bad regulation

Legislators in the United States still seem to lack the necessary understanding of the new technology in many respects. This also shows the ban on algorithmic stablecoins that was discussed in the US Senate. The Terra collapse happened back in May. In the first draft of the law, however, it takes two years to “study how algorithmic stablecoins work,” it says.

But there are also bright spots. The White House fact sheet also supports “responsible innovation.” Coinbase CEO Brian Armstrong believes that, like the development of the Internet hub Silicon Valley, the United States will be forced to give freedom to this innovation for the sake of economic competitiveness.

And so, some pro-crypto senators with the “Responsible Financial Innovation Act” have started a first attempt to integrate cryptocurrencies holistically into existing laws, taking into account the risks.

The draft law must answer the open questions about cryptocurrencies regarding taxes, securities and consumer protection in a way that promotes innovation. The clarity this provides can catapult the crypto sector forward.

Cardano founder Charles Hoskinson agrees. In an interview with Cheeky Crypto, Hoskinson predicts a “mega bull market” if the Responsible Financial Innovation Act goes into effect in the US. He believes that the legislative clarity will pave the way for a new wave of institutional investors in the sector. Even a small percentage of allocating their portfolios to the crypto sector would mean a huge flow of money.

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