But while increased regulation is expected following cryptocurrencies’ recent developments, the SEC’s latest move is an attempt to curb innovation, according to Adam Bialy, CPO at OpenPayd, a digital Banking-as-a-Service business.
“The US government is desperately trying to hold the tide of people that are innovating in crypto,” Bialy says. “The interpretation of Ripple as a security is fundamentally flawed.”
“It’s a desperate attempt to stem the tide of innovation,” he adds. “Ripple are the trailblazers. The US government, or the SEC, is biting more than it can chew at this point.”
On December 22, the SEC filed a complaint against Ripple Labs Inc – alleging that two of its executives raised over $1.3bn through an unregistered, ongoing digital asset securities offering.
The regulator claims that Christian Larsen, the company’s co-founder, executive chairman of its board and former CEO, along with Bradley Garlinghouse, Ripple’s current CEO, “raised capital to finance the company’s business” through the sale of XRP tokens.
The SEC alleges that the crypto’s founders carried out personal unregistered sales of XRP totalling around $600m.
“The SEC’s complaint charges defendants with violating the registration provisions of the Securities Act of 1933, and seeks injunctive relief, disgorgement with prejudgement interest, and civil penalties,” stated the press release.
However, Garlinghouse responded to the allegations by saying that the regulator’s action was “an assault on crypto at large,” and “created an unfair advantage to companies here in the US” by “benefiting BTC and ETH”.
“With this behaviour, the SEC is engaged in an all-out attack on the crypto industry,” he added.
Bialy believes the US regulator’s approach is an attempt to collect more taxes for the US government, particularly as the pandemic has dragged the country’s GDP down.
Ripple is also an easier coin to sue, he argues.
“It’s harder to sue anyone around Bitcoin being a security. With Ripple, it’s easier because there is an instigator in the middle of it. There’s a company that’s using XRP tokens for the purpose of moving money around the world. It just happens that because of some qualities of XRP that are compatible with other cryptos, many people treated it as an asset – an investment vehicle.
“If anything, this action comes from fear and lack of understanding of what they were trying to do – trying to prevent them from gaining further influence in the wider crypto space but also in the wider financial market,” Bialy adds.
Its centralised element also presents benefits, according to him, believing it is “almost like the ideal utopian democratic currency”.
Gareth Stephens, founder of Bitcoin Lessons, however, says that the decentralisation element of Ripple remains unproven.
“The term ‘decentralisation’ has been claimed by many projects in this space but when the CEO and executive team can be charged by regulators and it effects the viability of the whole project, it proves the project is centralised.
“The huge innovation in this space was the removal of central authorities and that isn’t solved by replacing the banks with yet another company.”
He adds that regulation will be a good signal to understand whether a project is decentralised or not – “ending some debates that have raged for years”.