XRP triumphs over SEC, but crypto clarity remains in the shadows

From the Editor’s Desk

Dear Reader,

The crypto community can be forgiven for feeling a little schadenfreude in recent days after we all watched a judge in the Southern District of New York stick it to the Securities and Exchange Commission in its case against Ripple Labs.

But, as many in the digital asset industry quickly began to realize when details of the verdict emerged, it was a little premature to pop the champagne, and the “payback time” mood was short-lived.

True, the SEC appears to have suffered a setback in its crusade to regulate (some might say crush) crypto by enforcement, and the Ripple-linked token XRP almost doubled in value on the news, with trading volumes briefly topping those of all other cryptocurrencies, but the victory was only partial. More importantly, it failed to provide the eureka moment of unambiguous regulatory clarity that the crypto industry and many other constituencies had hoped for.

The court’s ruling that XRP isn’t a security when it’s sold on exchanges and via algorithms, but that it is when it’s sold to institutional buyers, is an unhappy compromise that, while potentially providing relief to the likes of Cardano and Solana, also targeted by the SEC, remains underwhelming.

Its most egregious failure is that it leaves the door open for further legal interpretations. That could mean more muddying of the already turbid legal waters. It could also mean an appeal of the court’s decision by the SEC when the regulator has finished licking its wounds.

Ripple’s win can therefore be described as limited, and it begs the question of why we’re not seeing such unproductive – and indeed destructive – legal wars of attrition in other jurisdictions.

Could it be because many – notably the European Union – have come up with workable regulatory frameworks for the industry rather than blowing hot and cold on it as U.S. politicians have done while the SEC fills the policy vacuum with lawsuits?

When it comes to regulation, the U.S. has often been at the forefront of innovation, and its frameworks of rules and norms have been emulated the world over. Given that, and the fact that crypto is such an intensely innovative phenomenon, we can and should expect better.

Until the next time,

Angie Lau,
Founder and Editor-in-Chief
Forkast.News

Forkast.Insights | What does it mean?

In a landmark court decision with implications for the global cryptocurrency industry, the verdict concerning the status of XRP has been met with both clarity and confusion by stakeholders.

For retail investors of XRP who participated in the secondary sales of the digital currency, such as those that acquired it through crypto exchanges, this legal outcome brought much-needed clarity. CoinMarketCap data indicates a noteworthy surge in the asset’s value to US$0.82, a peak not seen since pre-Terra-Luna in April 2022, which was observed shortly following the court’s decision.

The potential future ramifications of this ruling for the classification of cryptocurrencies as securities in the U.S. cannot be overstated. Lawsuits recently lodged by the SEC against Binance and Coinbase underscored this, with the agency deeming at least 12 additional cryptocurrencies, including popular coins like Cardano’s ADA and Solana’s SOL, as securities. Should the recent ruling concerning secondary XRP sales extend to these cryptocurrencies, investors may find further cause for celebration. Some leading exchanges in the U.S. that delisted XRP have already started to relist the cryptocurrency. 

Nevertheless, a cautious approach remains warranted. While some commentators have hastened to label the recent XRP ruling as a significant triumph for cryptocurrency investors, only a fraction of XRP transactions since 2017, less than 1% as court documents suggest, qualify as programmatic sales.

Notably, the court concluded that Ripple’s direct XRP sales to professional investors infringed U.S. securities laws. Despite the ruling being largely perceived as a victory for the sector, safety might only extend to 1% of XRP holders.

This leaves Ripple Labs and its executives, including Brad Garlinghouse and Chris Larsen, potentially entangled in continued legal complexities.

Forkast.Insights | What does it mean?

This week, the market slowed significantly on Sunday when Ethereum and Solana, the number one and three-ranked blockchains by sales volume, fell to nearly a two-year low in transactions. Global sales also declined to a 39-week low, showing investors have throttled back from trading. And who can blame them? Trade profits are still largely negative with US$8.2 million of losses for the week ending July 16, and new mints still are failing to offer innovation for collectors.

On any given day this week, CryptoSlam’s collections ranking perfectly shows the change in the market, with the top 10 leaderboard reflecting collections that struggle to reach US$500,000 in sales in a 24-hour period. Simply put, traders have stepped on the brakes as they slow down their trading practices and have moved onto securing grails, trading crypto, or taking a break entirely.

Prices of collections like Bored Ape Yacht Club, CryptoPunks, and Azuki continue to hover around two-year laws, but they’re full of NFTs that many consider grails. These low prices attract collectors who have been waiting to enter the exclusive communities and investors who still see great financial opportunities in these collections. Noteworthy sales this week include BAYC #1734 (US$1.2 million), CryptoPunks #8531 (US$1 million), CryptoPunks #5402 (US$340,000), CryptoPunks #512 (US$311,000), and around two dozen other CryptoPunks that sold for over US$100,000. 

NFTs at the macro level show that the base of collectors in the NFT ecosystem has clearly grown over the years, even if they’re not as active now. Total transactions and supply in 2023 across blockchains dwarf what we have witnessed in years past. In fact, the increase in NFT supply, now up to some 302 million NFTs, shows the exponential growth that the blockchain collectibles ecosystem has witnessed since 2021, when fewer than 10 million NFTs existed. Total transactions in 2023 tell the same story, with over 44 million transactions just over halfway this year compared to 40 million last year, and 12.4 million in 2021.

With the NFT market heading into the historically slow August-December with little momentum behind it, NFTs seems to be falling headfirst into one of its first significant tests of traders’ conviction. This second-half stretch typically finds US collectors all but giving some NFTs for free as they look to harvest losses on their taxes. Will traders be spooked by the sale of grails at floor prices, along with volume and sales that may look closer to the period before NFTs reached the masses? 

In some positive news to end this week, Yuga Labs announced that Ape Fest 2023 will take place on Nov. 3-5 in Hong Kong. With China potentially primed to enter the NFT market in a big way, traders are hoping the can’t-miss NFT party will help close out the year with NFT fireworks. Some even speculate that Yuga Labs may launch its Othereside metaverse to make this a worldwide party that bridges the physical and digital worlds. If they pull this off, the era of the metaverse may finally be upon us and with it, a potential new NFT boom. 

Forkast.Insights | What does it mean?

Not even two months following the day that Hong Kong’s cryptocurrency regulations came into effect, it seems that some people are already spoiling the party that many – perhaps especially the city’s government, which drafted them – had been eagerly anticipating.

The Journal’s report that two or more unnamed global banks in Hong Kong have eschewed engaging with anything linked to crypto trading inevitably invites speculation as to which lenders these might be.

The fact that HSBC, one of the city’s highest-profile banks, saw fit to beef up restrictions on its UK retail customers’ access to crypto assets earlier this year may suggest to some that it’s one of them. But given the limited information currently available, speculation would be imprudent.

More important than any witch hunt for names is the fact that – at least reportedly – big banks appear to be putting the brakes on the Hong Kong Monetary Authority’s ambitious plans to turn the city into a crypto hub. And, moreover, the fact that they appear to be doing so despite exhortations by the de facto central bank to service the industry it is so keen to nurture.

It’s apposite to recall that something similar occurred in India in 2020, when the country’s Supreme Court overturned a ban on banks’ handling of crypto-related transactions imposed by the Reserve Bank of India. Lenders listened more to the central bank than they did to the court, and proceeded to continue refusing crypto-linked business.

The specifics of the two cases differ, admittedly, but could we be seeing another case of banks simply not doing what they’re told?

A curious aspect of what’s happening in Hong Kong is the fact that Chinese state banks – once considered some of the least likely lenders in the world to touch anything with even a whiff of crypto, thanks to Beijing’s blanket ban on it – appear to have warmed to the idea of servicing crypto clients in the city. The extent to which they offer crypto businesses a way of going about their affairs in Hong Kong will be something to watch.

And given Hong Kong authorities’ increased willingness to assert their agenda following their Beijing-instigated assault on the local legal and political systems, the press and more during the past four years, we could even see other lenders receiving potentially more persuasive official encouragement to follow the state banks’ lead if they don’t toe the line. 

But in the meantime, uncertainty complicates prospects for crypto enterprises trying to do business in a city where operating licenses depend on the ability to open accounts that banks are reluctant to make available.

As developers and entrepreneurs – like their counterparts in India a few years ago – weigh their options and consider more supportive financial ecosystems in which to operate, Hong Kong’s path to becoming a crypto hub seems more challenging than it ought to be.