The crypto world was thrilled after a federal judge ruled in a lawsuit filed by the Securities and Exchange Commission against cryptocurrency firm Ripple Labs.
A judge ruled Thursday that Ripple did not violate securities laws by selling XRP tokens on public exchanges, as the SEC argued. However, the judge found that Ripple offered and sold the XRP token as an “investment contract,” violating securities laws.
This already has a lot to follow, but the result is that both regulators and crypto peers are claiming victory in this thorny case.
Much of the legal debate in the cryptocurrency space revolves around whether certain digital assets can be classified as “securities.”
Timothy Masad, former chairman of the Commodity Futures Trading Commission, said regulators ask questions to make sure the regulations are correct. “Are the developers still involved? Does anyone have administrative keys or permissions that could affect the value of the tokens?” Masad said.
If so, the asset is classified in the securities bucket. This theoretically brings the digital asset and the company behind it within the jurisdiction of the SEC.
But Masad said regulators often have to go to court to get enough information to make a decision. “Currently, there is nothing mandating disclosure for specific tokens,” he said.
Masad argues that cryptocurrency companies need to make more disclosures upfront before tokens appear on familiar trading platforms.
Despite disagreements over what the new regulation should be, Sheila Warren, CEO of the Crypto Council for Innovation, said regulation is necessary.
“Sophisticated and mature stakeholders in all industries understand that being within regulatory boundaries provides comfort and safety for users and consumers. That’s important,” Warren said. .
However, Stephen Parry, a partner at law firm Brown Rudnick, noted that many of the current “regulatory boundaries” that apply to cryptocurrencies were drafted almost a century ago.
“Securities and trading laws are from the 1930s. Congress didn’t anticipate digital assets that could be traded electronically,” Parry said.
Unsurprisingly, these rules aren’t too old in the digital age, Parry said.
“Imagine having interstates and cars, but with a speed limit of 16 mph. That doesn’t make much sense,” he added.
We all agree. Several updates are planned for the law.
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