The cryptocurrency market is going through a prolonged winter, and very few things seem to be going in its favor, especially from the point of view of dramatic rise in prices and sky-high valuations of crypto coins. However, the cryptocurrency space is witnessing developments of far-reaching significance. For example, the United States Securities and Exchange Commission (SEC) has received legal debacles while dealing with cryptocurrency companies in recent months. The US SEC can be compared with India’s Securities and Exchange Board of India (SEBI).
Grayscale Trust, a crypto asset fund manager that runs Bitcoin and Ethereum-based trust funds, Grayscale Bitcoin Trust (GBTC) and Grayscale Ethereum Trust (ETHE), sued the SEC for rejecting its applications to turn these trust funds into Exchange Traded Funds (ETFs), with bitcoin and Ethereum as the underlying assets. The court did not find SEC’s stance tenable and asked it to re-review its rejection of Grayscale’s spot bitcoin ETF application.
The court questioned the SEC’s stance of allowing bitcoin futures ETFs but not allowing bitcoin spot ETFs. SEC argued that cryptocurrencies see abnormal price movements and pose significant investor risks. However, the court did not see how the risks differed for futures and spot ETFs. SEC has not moved an appeal against the court’s order, and the due time to do so has elapsed, meaning it won’t counter the court’s verdict. Many believe it would lead to the launch of the first bitcoin spot ETF in the US market and may herald a new bull run in the cryptocurrency industry.
Grayscale’s trust funds are functioning more like traditional mutual funds, allowing investors exposure to Bitcoin and Ethereum without buying and storing them physically. It allows ordinary investors to trade on the price movements of these two stellar cryptocurrencies without the complications or technicalities of investing in digital assets. It helps expand the investor base for these digital assets.
Another court ruling in July left the SEC bruised in the Ripple V. SEC case, which attracted worldwide attention. In this case, the SEC charged blockchain company Ripple Labs and its senior executives with collecting $1.3 billion, beginning in 2013, from investors by selling its native coin XRP and, apparently, promising them higher returns. It makes Ripple Labs and these executives — Ripple CEO Brad Garlinghouse and Executive Chairman Chris Larsen – liable for selling unregistered securities.
In a judgment on competing motions for summary judgment, the US court ruled that XRP, when sold to retail investors, is not a security. Still, it could be considered a security when sold to institutional investors. The court has appointed a committee to examine how XRP sales to institutional investors should be treated. Since the court ruling is on an issue that comes in the way to the final judgment, it was dealt with priority and SEC can’t appeal unless it is of paramount importance. The SEC did find it worth appealing, but the judge — Analisa Torres of the Southern District of New York — didn’t find merit in its appeal and dismissed it.
Ripple has been embroiled in this case since December 2022, now nearing three years. It’s a long period in the space of cryptocurrency, which promises lightning quick and dirt cheap cross-border payments without a regulator or government monitoring the transactions. Ripple is among the most promising technology providers for delivering quick and cheap remittance services for established traditional financial institutions globally. Before the SEC brought the charges against Ripple, it was believed to be closing on other payment systems, such as SWIFT, in the race to become the best.
In the latest, the SEC has decided to drop the charges against Ripple executives Garlinghouse and Larsen, and Ripple has claimed the SEC decision was a surrender by the regulators.
A new report from Morgan Stanley last week says the crypto winter could be over, and a new spring may see the light of day in 2024. Recently, G20 accepted the recommendations of a joint report by the International Monetary Fund (IMF) and the Financial Stability Board (FSB). It calls for member countries to enact laws to govern cryptocurrencies. It also calls for enhanced cooperation and collaboration among cross-border regulators. Both these areas – effective legislation and regulatory monitoring- have remained neglected and missing not only in cryptocurrencies but also in traditional finance.
For example, when did we hear someone took an Indian regulator to the court? Jurisdictions like India are still managing their affairs largely informally and guided by the whims and fancies of bureaucrats and political appointees. (IPA Service)