Ripple’s win in SEC case highlights collaboration between regulators and crypto players

The legal victory of cryptocurrency solutions provider Ripple over US regulators has highlighted the need for industry players and governments to collaborate and work together to help advance the technology deemed the future of finance, its president has said.

The landmark case sought to target the lack of transparency in the sector but instead “certainly set precedent for the rest of the industry”, Monica Long told The National in Dubai.

The US Securities and Exchange Commission (SEC) in 2020 alleged Ripple, the creator of the XRP crypto, raised $1.3 billion in 2013 by selling the token in an unregistered security offering. Ripple countered that XRP should not be treated as a security.

The case came to an end in July this year when a judge ruled that XRP – and, broadly, cryptocurrency – is not a security if it is sold to the public on an exchange, but would be if sold to institutional investors, dealing a major blow to the SEC’s efforts to rein in the industry.

The SEC also went after Ripple chief executive Brad Garlinghouse and co-founder Chris Larsen, but ultimately dropped the charges.

“In the US especially, if the securities regulator files a lawsuit against your company, generally almost every time the company has to kind of fold up to the SEC and is not able to fight,” Ms Long said ahead of the Ripple Swell conference in Dubai.

“But we had the capacity to stand up and fight. We’re fighting this for the industry and that’s definitely proven true in our case … the clarity is super helpful for the industry.”

Instead of engaging in legal battles, Ripple is calling for co-operation, in which governments lean into learning and understanding the potential benefits of cryptos, including more affordable payment options for residents, Ms Long said.

She warned too much nitpicking may alienate legitimate crypto providers, forcing them to leave for countries with clearer regulations.

Ms Long cited countries such as the UAE, Saudi Arabia, the UK, Singapore and even the EU “where you see that kind of leadership”, while the US “is a laggard right now”.

“If regulators and governments won’t lean in and try to enable positive innovation, then the innovation just starts leaving.”

The cryptocurrency industry has struggled with a spate of challenges, most notably regulators attempting to establish some control over the industry.

Last year was one of the most tumultuous in cryptocurrency history, with the implosion of several large companies including Celsius Network, Three Arrows Capital and, most prominently, FTX, which filed for bankruptcy on nearly a year ago.

Sam Bankman-Fried, the FTX founder once worth about $26 billion, was convicted for seven counts of fraud last week, cementing his spectacular downfall from grace.

Other notable companies and personalities in the crosshairs of regulators are Binance and its chief executive Changpeng Zhao, being chased by the SEC and the Commodity Futures Trading Commission, and Alex Mashinsky, the former chief executive of Celsius who has been arrested and is facing his own fraud trial.

Job losses and hacking activities have also contributed to the sector’s decline.

The cryptocurrency industry, however, has rebounded from its lows but is still in a bear market which is “still sluggish”, Ms Long acknowledged.

The “bright spots” for the sector include “demand and appetite” for a Bitcoin exchange-traded fund and the lift-off in cryptocurrency payments, she said.

Because of blockchain’s security and its economical advantages – proponents say it can significantly reduce money transfer fees, for example – “payments as a use case for crypto makes a lot of sense”, Ms Long said.

Ripple is continuously acquiring and seeking licences in key markets around the world as a payments operator to promote the wider use of crypto for transactions, she said.

On November 2, Ripple achieved major breakthrough in the UAE when the Dubai Financial Services Authority added XRP to its list of recognised tokens.

The decision “brings a lot of legitimacy … [and] tells businesses and financial institutions who are doing business here in the DIFC [Dubai International Financial Centre] that this is an asset that’s safe to use as part of whatever products they might develop,” Ms Long said.

The UAE is one of the biggest markets for cryptocurrencies, and which helps place the wider Middle East “definitely at the top of the heap when it comes to crypto adoption, due to a combination of funding and investment into the space, and its actual usage,” she said.

Ripple however does not have plans for an initial public offering, as the flexibility of its balance sheets enables the “robustness to stay private”, Ms Long said.

“We’re very much in a build-and-grow-aggressively kind of mode, which is pretty easy to do and you have a lot more flexibility when you’re a private company. So our plans are to stay private for now.

“Most of our revenue stream is coming from our products and customers, so that’s kind of where we’re just going to keep pressing the gas in that direction and build momentum.”

Updated: November 08, 2023, 4:30 AM