A precedent-setting verdict in the Securities and Exchange Commission's suit calling its XRP token an unregistered security should come this year, Brad Garlinghouse said.
Listen to the CoinMarketRecap podcast on Apple Podcasts, Spotify and Google Podcasts
In the wake of a flurry of enforcement actions against crypto companies by the Securities and Exchange Commission in recent weeks, Ripple CEO Brad Garlinghouse thinks he's in a better position to spread a simple message: It's time to start paying attention.
For one thing, the agency's December 2020 lawsuit arguing that his crypto payments company — as well as Garlinghouse and another Ripple executive personally — have been selling an unregistered security in the form of its XRP token should be coming to a head soon.
It's been three months since Ripple and the SEC filed final arguments and asked a judge for a summary judgment or, failing that, a trial. If it's the latter, Garlinghouse told Bloomberg on March 2, a verdict will probably come this year.
For another, that case, SEC vs. Ripple, "is not really just a case about Ripple or about XRP," Garlinghouse said.
It is, he argued, the thin end of the wedge in SEC Chairman Gary Gensler's campaign to label virtually every cryptocurrency except for Bitcoin as a security — and the Ripple lawsuit may be his best chance at creating the precedent of a federal court upholding that judgment.
"It's really about the industry and how the SEC is playing offense and attacking the whole industry," Garlinghouse said.
Pointing to more than a half-dozen enforcement cases filed since the beginning of the year, he added:
"Two-and-a-half years ago, when they started, I'm not sure everyone fully digested that. Now, that is widely understood: This is going to be pivotal for the whole industry."
Regulation Through Enforcement
Making an argument that has become almost an industry mantra, Garlinghouse said:
"This is not a healthy way to regulate an industry, your regulation through enforcement, as opposed to what we're seeing in other countries where they're doing the work… They're creating a framework that allows an industry to grow while protecting consumers. And I think that's really what the U.S. is lagging on."
He's not the only Ripple executive out proselytizing this week. Chief legal officer Stuart Alderoty made that last point in a Blockworks interview. He said:
"The first piece of advice you give somebody who's thinking about a [crypto] project is, don't launch it in the U.S. because the rules are unclear. Go to a jurisdiction where the rules are clear. Not light-touch, but clear."
It's a problem, Garlinghouse said, that is already pushing crypto companies offshore.
Speaking of a theoretical U.S. regulatory regime in which not all cryptocurrencies are classified as securities, Garlinghouse added:
"Also, consumers are suffering because of that because you don't have the same protections that the U.S. regulatory frameworks can provide."
Careful What You Wish For
Given the disasters of 2022, including the $60 billion implosion of UST and LUNA, the series of crypto lender bankruptcies and finally the collapse of FTX in a welter of fraud, this doesn't seem like a very crypto-friendly time to to have a regulatory regime created.
Still, there are signs that things aren't that bad.
One of the first acts of North Carolina Rep. Patrick McHenry as chair of the now-Republican controlled House Financial Services Committee was to create a Subcommittee on Digital Assets, Financial Technology and Inclusion.
Among its goals, McHenry said, is "providing clear rules of the road among federal regulators for the digital asset ecosystem." He said:
"If we can get legal clarity, then we can have legitimate investment dollars come into this technology field. I want clear rules of the road so we don't have fraudsters like Sam Bankman-Fried leading this technology."
But any such regulation will also have to go through the Senate Banking Committee, chaired by Ohio Democrat Sherrod Brown, a longtime crypto skeptic.
Speaking at a February hearing about the "crypto crash," Brown said:
"These crypto catastrophes have exposed what many of us already knew: digital assets — cryptocurrencies, stablecoins, and investment tokens — are speculative products run by reckless companies that put Americans' hard-earned money at risk. Not surprising from an industry that was created to skirt the rules… It's time now to consider how to protect consumers from unregulated digital assets, and ultimately, who we want our financial system to serve."
Which is a fairly clear indication that crypto regulation written at the start of 2023 will be very different from what it would have been a year earlier.