Bad News For Ripple: The SEC Is Finally Appealing!

The future of crypto regulation in the United States may well be determined in the coming months, and the Ripple case is at its heart. Indeed, the filing of a new appeal by the Securities and Exchange Commission (SEC) on October 2, 2024, in its lawsuit against Ripple Labs, rekindles debates on the legal status of cryptos. After an initial ruling in favor of Ripple in 2023, this appeal reshuffles the cards, as the forthcoming decision could redefine the rules of the game for an entire ecosystem.

SEC vs Ripple: A Highly Anticipated Appeal!

On October 2, 2024, the SEC officially filed a notice of appeal against the judgment rendered by Judge Analisa Torres in the case opposing the agency to Ripple Labs. According to this judgment, secondary sales of XRP, Ripple’s native token, did not constitute securities transactions. “XRP, as such, is not a security,” Torres had ruled. In fact, she relied on the SEC’s inability to prove that the conditions of the Howey test were met for secondary market sales. However, the judge had also concluded that Ripple’s initial sales to institutional investors were indeed securities sales because they met the criteria of an investment contract.

Such a partial judgment had been perceived as a major victory for Ripple and the crypto industry in general, as it drew a line between institutional sales and exchanges in public markets. However, the SEC’s appeal, which seeks to overturn this decision, creates a climate of uncertainty once again. Thus, the SEC fears that this decision will weaken its ability to take action against other cryptos based on their sales structure.

The Stakes of the Appeal and Regulatory Prospects

The SEC’s appeal goes far beyond the simple case of Ripple. Indeed, the outcome of this case could establish a fundamental legal precedent for the entire crypto industry. If the decision in favor of Ripple is confirmed, it would greatly weaken the SEC’s ability to regulate cryptos and consider them as securities in cases of secondary sales. To date, the SEC relies on the Howey test to define what is a security, but this trial could lead to a redefinition of this test in the context of cryptos.

Meanwhile, institutional players are showing growing interest in XRP, which further reinforces the relevance of the case. The company Bitwise has newly filed an application to create an ETF based on XRP, although the SEC’s appeal could delay this process.

That same day when the SEC filed its notice of appeal in the Ripple case, the agency also announced the resignation of Gurbir Grewal, its head of enforcement, scheduled for October 11, 2024. Grewal, who had taken office in July 2021, quickly gained a reputation as a spearhead of the SEC’s strict enforcement policy, especially towards the crypto industry. Under his leadership, the agency has brought over a hundred lawsuits against various sector players. Grewal has often been accused by crypto advocates of having a too punitive approach, which aims to stifle innovation rather than encourage a clear and constructive regulatory framework.

The outcome of this appeal will have major repercussions for Ripple, but also for the entire crypto market. As regulators continue to refine their approaches to this booming sector, the Ripple case could redefine the very foundations of the regulation of these assets. Industry players eagerly await the verdict, as it will influence the legality of future sales of XRP, but also the SEC’s approach to all cryptos.