Ripple counsel slams SEC for trying to bulldoze and bankrupt crypto

June 14, 2022 Coin Telegraph

“Like a hammer wanting everything to be a nail, the SEC is keeping everything murky so it can argue every crypto is a security,” claims Ripple general counsel Stu Alderoty.

Ripple general counsel Stu Alderoty has slammed the United States Securities and Exchange Commission (SEC) for trying to “bully, bulldoze, and bankrupt” crypto innovation in the U.S. in the name of expanding its own regulatory territory.

“By bringing enforcement actions–or threats of potential enforcement–the SEC intends to bully, bulldoze, and bankrupt crypto innovation in the U.S., all in the name of impermissibly expanding its own jurisdictional limits.”

Alderoty shared his views on June 13 amidst an ongoing lawsuit between Ripple and the regulator, which he says is part of the “SEC’s assault on all crypto in the U.S.” by treating every cryptocurrency as a security.

“Like a hammer wanting everything to be a nail, the SEC is keeping everything murky so it can argue every crypto is a security.”

Ripple Labs has been embroiled in a legal battle with the SEC since December 2020, when the securities regulator filed a lawsuit alleging that Ripple executives had used Ripple (XRP) tokens to raise funds for the company starting in 2013, claiming it was an unregistered security at the time.

Ripple fought back, claiming that a 2018 speech delivered by Robert Hinman, then-Director of Corporation Finance for the SEC, had categorized Ether (ETH) and Bitcoin (BTC) and by-association, XRP, as a non-security due to being “sufficiently decentralized”.

Ripple argued that the speech was in contradiction with the SEC’s claims against Ripple and the XRP token, but the SEC countered the argument by claiming that the speech was the director’s own personal views and not the official view of the regulator. This nuance has been one of the most pivotal aspects of the Ripple vs SEC lawsuit.

4 years since the (in)famous Hinman speech, and we’re nowhere closer on knowing how to classify digital assets in the US – keeping every crypto, including ETH, in regulatory limbo. I penned some thoughts for @Fortune why enough is enough, @SECGov. https://t.co/FB16cceaia
— Stuart Alderoty (@s_alderoty) June 13, 2022

“Despite disclaimers that the speech was Hinman's personal opinion and “not necessarily that of the Commission,” the market took Hinman's speech to heart,” wrote Alderoty.

“For Ripple, Hinman’s speech affirmed the conclusion that XRP – a cryptocurrency that exists on an open, permissionless, decentralized blockchain ledger – was a commodity and/or a virtual currency. Certainly not a security,” he added.

Alderoty said the speech epitomized SEC’s deliberate muddying of the regulatory waters for crypto.

“Here in the U.S., the Securities and Exchange Commission (SEC) has deliberately muddied the regulatory waters for crypto […] To unlock crypto's true potential, we need to finally clean up this regulatory sludge.”

During a Washington Post event on June 8, United States Senators Kirsten Gillibrand agreed that most cryptocurrencies would likely be classed as securities under the Howey Test, with the obvious exception of Bitcoin and Ether.

Rostin Behnam, chair of the Commodity Futures Trading Commission (CTFC) took a slightly different view, saying that while there are “probably hundreds” of coins that replicate security coins, there are also many commodity coins, such as BTC and ETH that would be regulated by his commission.

The court battle between Ripple and SEC is expected to set a precedent for the treatment of cryptocurrencies, particularly altcoins under U.S. securities and commodities laws.

Gillibrand and Lummis state that most altcoins are securities

June 9, 2022 Coin Telegraph

Coin Telegraph

“Most cryptocurrencies go to the SEC [...] Bitcoin and Ether would be certainly commodities, and that's agreed upon,” said the U.S. Senator from New York Kirsten Gillibrand.

Senators Kirsten Gillibrand and Cyntia Lummis believe that most altcoins would likely be considered securities under their proposed new legislation — but confirmed that Bitcoin (BTC) and Ether (ETH) will be classified as commodities.

Lummis and Gillibrand both agreed with Securities and Exchange Commision Chair Gary Gensler’s assessment that most cryptocurrencies are securities under the Howey test with Gillibrand stating:

“Most cryptocurrencies go to the SEC [...] Bitcoin and Ether would be certainly commodities, and that's agreed upon. That's agreed with Chairman Gensler as well as the chairman of the CFTC.”

Gillibrand pushed back on reports characterizing the legislation as making the CFTC the primary regulator. “I don't think CFTC is the primary regulator," she said. "They just have the obligation to regulate Bitcoin and Ether, the majority of cryptocurrencies today.”

The pair made the comments during a Washington Post event on June 8, a day after releasing the details of the Responsible Financial Innovation Act.

.@SenLummis tells @ToryNewmyer, “The CFTC, although it will have the lion share by market cap, the majority of the digital assets...have characteristics of securities that will require the SEC's disclosure capabilities....The SEC's role in this is absolutely critical." pic.twitter.com/1B0wnQQ62p
— Washington Post Live (@PostLive) June 8, 2022

Rostin Behnam, chair of the Commodity Futures Trading Commission (CTFC), was also at the event and took a slightly different view on the proportion of altcoins that are securities. He said that while there are “probably hundreds” of coins that replicate security coins, there are also many commodity coins, such as Bitcoin (BTC) and Ether that should be regulated by the CFTC.

“It’s pretty clear that many of the digital assets themselves replicate or look like commodities. They're more like stores of value than they are securities.”

Tony Tuths, head of the digital assets team at KPMG Tax, told Cointelegraph that the legislation, under its current form is unlikely to “move forward” in the foreseeable future, adding it was unclear which coins will ultimately fall within the purview of the SEC versus the CTFC.

“On the regulatory side the legislation calls for the CFTC to be the primary regulator but then carves out a wide swath of tokens that have attributes similar to securities for regulation by the SEC. It will be a struggle to decipher what exactly is in the SEC bucket but it could be the exception that swallows the rule. “

The new bipartisan bill is expected to lean heavily on the Howey Test to determine whether a particular coin is classed as a security or a commodity.

“We’re trying to just fit the digital asset world into our current regulatory framework. […] We spent a lot of time on the definition of the modern Howey test,” said Senator Lummis during a CNBC interview on June 7.

The Howey Test is a framework set by the U.S. Supreme Court to determine whether a transaction qualifies as an investment contract, and thus considered security.

The Howey Test has become a focal point in the SEC’s case against Ripple which began in December 2020, alleging that the company used its digital token XRP to raise funds in 2013, and was an unregistered security token at the time.

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Softer-than-expected crypto regulation and stocks’ rebound position Bitcoin for a $42K close

March 10, 2022 Coin Telegraph

Softer-than-expected crypto regulation and stocks’ rebound position Bitcoin for a K close

Coin Telegraph

The Biden administration’s dovish approach to crypto sector regulation and a bounce in equities markets could give bulls a boost in Friday’s $790 million options expiry.

Bitcoin (BTC) bulls jumped in to defend the $40,000 level after a devastating retest of the $38,000 support on March 7. The confidence and momentum that was building up earlier in the month was suddenly shattered after BTC failed to break $44,500 for the third time this month on March 2.

The Bitcoin price rally on March 9 has been partially attributed to this week’s expected United States inflation data report. Analysts expect another 40-year record high as the consumer price index (CPI) reaches 7.9% yearly gains.

Furthermore, a statement from the U.S. Treasury Secretary Janet Yellen regarding President Biden’s executive order on digital assets was somewhat milder than expected. Although deleted from the U.S. Department of the Treasury website as it was seemingly released early by error, the order will apparently call for “a coordinated and comprehensive approach to digital asset policy.”

The commodities rally was a presage for Bitcoin’s hike

Considering that Bloomberg Commodities Index (BCOM) reached an all-time high of 134 on March 8, Bitcoin’s recent strength should not come as a surprise. Despite correcting to 129, the BCOM gains accumulated in 30 days remain at 18.5%, according to MarketWatch.

According to the open interest on Friday’s options expiry, Bitcoin bulls placed heavy bets between $44,000 and $48,000. These levels might seem optimistic right now, but Bitcoin tested this level eight days ago.

*Bitcoin options aggregate open interest for March 11. Source: CoinGlass*

A broader view uses the call-to-put ratio and shows a 40% advantage to Bitcoin bulls, as the $460 million call (buy) instruments have a larger open interest versus the $330 million put (sell) options. However, the 1.40 call-to-put indicator is deceptive because most bullish bets will become worthless.

For example, if Bitcoin’s price remains below $43,000 at 8:00 am UTC on March 11, only $190 million worth of those call (buy) options will be available. This effect happens because there is no value in the right to buy Bitcoin at $44,000 if it’s trading below that level.

Bulls could pocket $140 million at $42,000

Below are the three most likely scenarios based on the current price action. The number of options contracts available on March 11 for bulls (call) and bear (put) instruments varies depending on the expiry price. The imbalance favoring each side constitutes the theoretical profit:

Between $40,000 and $42,000: 2,600 calls vs. 2,100 puts. The net result is balanced between call (bull) and put (bear) options.
Between $42,000 and $43,000: 4,500 calls vs. 1,150 puts. The net result favors bulls by $140 million.
Between $43,000 and $44,000: 5,100 calls vs. 700 puts. The net result favors the call (bull) instruments by $190 million.

This crude estimate considers the call options used in bullish bets and the put options exclusively in neutral-to-bearish trades. Even so, this oversimplification disregards more complex investment strategies.

For instance, a trader could have sold a call option, effectively gaining a negative exposure to Bitcoin above a specific price. Unfortunately, there’s no easy way to estimate this effect.

Bears need BTC price below $42,000 to balance the scales

Bitcoin bulls need to hold $42,000 to score a $140 million profit on March 11. Furthermore, a mere 2% price hike from the current $42,200 level is enough for Bitcoin bulls to secure a $190-million gain on Friday’s options expiry.

Bears will face difficulty suppressing the price given the short-term positive sentiment of inflation expectations and lessened pressure from regulators. Currently, options markets data favor the call (buy) options.

The views and opinions expressed here are solely those of the author and do not necessarily reflect the views of Cointelegraph. Every investment and trading move involves risk. You should conduct your own research when making a decision.