Crypto regulations are coming soon

Abraham George Crypto Musings

While the crypto markets are generally down and taking a breather, they are here to stay. Currently there are over 10,000 cryptos and I believe when the regulatory frameworks are in place almost 99% of them will disappear.

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In fact the US Senator Elizabeth Warren who is active on many policy matters and is part of of the regulatory framework for the current government has urged the SEC chairman Gary Gensler to come up with some regulatory fine print before the end of this month. To be precise on 28th of July.

By this time I am sure most of you who are interested in cryptos has some idea about the ongoing battle in court between the SEC and Ripple. So far every motion has been going in Ripple’s favour. Sec has never been in a situation like this. They have either won all the cases against a company or gone for settlements. As far as Ripple is concerned, the SEC has caught the tiger by its tail. So the final settlement of this case should have landmark repercussions for Ripple and cryptocurrencies in general. Sarah Netburn who is a very eminent Judge (she presided over the 9/11 issues) has given enough rope to the SEC in most of their requests. Ripple has hired an army of lawyers to defend them - 21 of them. Brad Garlinghouse (CEO of Ripple) and Chris Larson (Chairman of Ripple) has hired specialist lawyers for themselves to defend their case.

Ripple wanted a former executive and director of SEC, William Hinman, to make a deposition under oath to the court on a speech that he made in 2018 alluding that Bitcoin and Ethereum are not securities. If that is true then XRP also should not be a security as it never held an ICO.

SEC is arguing that speech was made in his private capacity and SEC has not officially confirmed that Bitcoin and Ethereum are not securities. The truth of the matter is that the speech was written by SEC officials and after that speech Ethereum just took off. In the process Hinman made about more than 15 mio dollars personally through the law firm Shearman & Sterling where he was a managing partner and had some work with Ethereum. SEC was opposed to Hinman being dragged to court though Hinman is an ex-official of the SEC. So what is that the SEC has to hide?

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Netburn has overruled that request and I believe that important day in court with Hinman will take place on Jul 27th. It will all depend on how Ripple lawyers will grill Hinman to argue their position to prove XRP is not a security but a digital currency. So a lot happening by the end of this month in terms of Ripple’s existence in US and regulations for cryptos. So stay tuned.

The existing rule on an instrument being a security or not is defined by the ‘Howey test’ which came into existence in 1946. If any instrument is a security they come under the preview of the SEC, but if it is a currency or commodity they come under the authority of the CFTC.

After the Ripple case is settled it could be that any instrument has to pass the “Ripple test” as the definition of a security should change considerably with many crypto instruments in play and a lot has changed between 1946 and now. The SEC will also come under lot of scrutiny. Remember this case against Ripple was filed by Jay Clayton the former Chairman of SEC on his last day in office on Dec 22, 2020. He now works for a hedge fund called ‘One River’ which specializes in trading only in Bitcoin and Ethereum. Please be my guest and go connect the dots.

Everyday when I go for my daily walks I listen to many videos relating to XRP. Most of them are positive videos giving some version of ‘pie-in-the-sky’ type of unrealistic price targets. What I am specifically looking for are any negative videos as I am pretty well versed with what XRP is delivering and what it can do.

Those serious enthusiasts in XRP should watch the below video. An interview with Matt Hamilton, director of developer relations at Ripple. The video is about 40 minutes but worth your time.

Abraham George is a seasoned investment manager with more than 40 years of experience in trading & investment and portfolio management spanning diverse environments like banks (HSBC, ADCB), sovereign wealth fund (ADIA), a royal family office and a hedge fund.