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Ripple Executive: Regulation Is the Biggest Risk We Face

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A senior executive at Ripple has declared regulation to be the biggest risk the startup company faces in its quest to become a global payment protocol. To respond to the challenge, the San Francisco-based company is planning to assemble a large regulatory team to help navigate the complex environment.

Ripple’s Regulatory (and HR) Hurdle

In a panel session hosted by the University of Pennsylvania’s Wharton Scale School, Ripple’s Senior Vice president Asheesh Birla described the regulatory hurdles facing his company over the next two years:

“We’re in an environment where regulation is so important and our biggest risk … is regulation. We are building out a very big regulatory team and we’re making sure that we’re going around the world… for the next 1,000 customers that we want to bring on… which we think we can in the next two years… that regulation’s not going to be an issue.”

Birla also suggested that Ripple may face challenges recruiting and maintaining top talent given the four-year vesting period that normally characterizes Silicon Valley startups. As Birla noted, four years are not enough time for fin-techs to deliver a return on equity.

“The problem with Ripple… is that now we have people now in their fourth year – we’re not really giving that much equity compared to four years ago and so what’s your incentive to really say? So, that’s a problem for us right now. People are staying because they love the vision.”

Is XRP a Security?

The biggest regulatory question facing Ripple is whether its XRP currency should be classified as a security. Although the company has vehemently denied XRP’s security status, U.S. regulators appear undecided. What’s more, multiple lawsuits have come forward claiming that XRP is in fact a security and should be regulated as such.

Ripple has hired former SEC chair Mary Jo White to represent the company in a class action lawsuit that was filed in May by investor Ryan Coffey. The plaintiffs claim that Ripple profited from price increases in XRP at the expense of investors due to its centralized ledger. Roughly 60% of all XRP tokens are held by the parent company.

Although the debate continues, Ripple CEO Brad Garlinghouse has offered compelling reasons why XRP should not be considered a security. For starters, the XRP would continue to function even if the Ripple company closed its doors. This essentially means that purchasing XRP is not equivalent to buying shares of a company.

XRP is also said to solve real world business problems tied to cross-border transactions and liquidity, which means it fulfills a utility function as opposed to a security function.

Disclaimer: The author owns bitcoin, Ethereum and other cryptocurrencies. He holds investment positions in the coins, but does not engage in short-term or day-trading.

Featured image courtesy of Shutterstock.

Important: Never invest (trade with) money you can't afford to comfortably lose. Always do your own research and due diligence before placing a trade. Read our Terms & Conditions here. Trade recommendations and analysis are written by our analysts which might have different opinions. Read my 6 Golden Steps to Financial Freedom here. Best regards, Jonas Borchgrevink.

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4.6 stars on average, based on 602 rated postsSam Bourgi is Chief Editor to Hacked.com, where he specializes in cryptocurrency, economics and the broader financial markets. Sam has nearly eight years of progressive experience as an analyst, writer and financial market commentator where he has contributed to the world's foremost newscasts.




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Altcoins

Bitcoin, Ether and Ripple Up in the Air as SEC Delivers a Sobering Reminder

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The U.S Securities and Exchange Commission just delivered a sobering reminder to the crypto community regarding the legal status of Bitcoin and Ethereum. SEC Director of the Division Corporation Finance William Hinman originally told a San Francisco conference in June that:

“…based on my understanding of the present state of Ether, the Ethereum network and its decentralized structure, current offers and sales of Ether are not securities transactions. And, as with Bitcoin, applying the disclosure regime of the federal securities laws to current transactions in Ether would seem to add little value.”

SEC Clarifies Crypto Security Stance

Today the SEC Chairman Jay Clayton released this official statement in which he reminded everyone that media statements made by SEC personnel should not be taken as legal pronouncements. Clayton stated:

“The Commission’s longstanding position is that all staff statements are nonbinding and create no enforceable legal rights or obligations of the Commission or other parties.”

In a particular sentence that may have been included specifically to cool the enthusiasm generated from his colleague Hinman’s original statement, Clayton states:

“…our divisions and offices, including but not limited to the Division of Corporation Finance, the Division of Investment Management and the Division of Trading and Markets, have been and will continue to review whether prior staff statements and staff documents should be modified, rescinded or supplemented in light of market or other developments.”

The last part about ‘modifying, rescinding or supplementing’ future documents suggests that the SEC are starting to worry about the effects their own words have on the very market they’re attempting to regulate.

When the original statement by Hinman hit the headlines in June, Bitcoin immediately surged by around 6%. Ethereum benefitted even more from the news and spiked 10% within the space of an hour.

Consequences for Bitcoin, Ether and Alts

The reminder from the SEC is unlikely to affect the average bag-holder, who in all likelihood disregards much of what comes out of such traditional institutions as the SEC. The news is more likely to strike hesitation into the minds of large-scale, corporate investors who thought all of this uncertainty was already behind them.

It could also spell either good or bad news for Ripple, which is currently fighting five lawsuits – including two federal lawsuits – against claims that its token sale represents a security issuance.

Director Hinman’s original statement back in June suggested that decentralization was key to avoiding being classed as a security. He suggested that coins and tokens from centralized blockchains would have a harder time with the SEC:

“Over time, there may be other sufficiently decentralized networks and systems where regulating the tokens or coins that function on them as securities may not be required. And of course there will continue to be systems that rely on central actors whose efforts are a key to the success of the enterprise. In those cases, application of the securities laws protects the investors who purchase the tokens or coins.”

With XRP being the third largest capped coin in existence, its prominence has made it a prime target for those suspicious of the currency’s relationship to the Ripple company. As the lawsuits began to pile up, many began to question what Hinman’s words would mean for XRP.

Today’s clarification by Chairman Clayton could be seen as a reprieve for XRP, as it essentially shelves the decentralization issue for the time being. On the other hand, it could mean that even if XRP is proved to be wholly decentralized, it may have even larger requirements to fill before gaining a positive classification – as could the rest of the entire crypto market.

Featured image courtesy of Shutterstock. 

Important: Never invest (trade with) money you can't afford to comfortably lose. Always do your own research and due diligence before placing a trade. Read our Terms & Conditions here. Trade recommendations and analysis are written by our analysts which might have different opinions. Read my 6 Golden Steps to Financial Freedom here. Best regards, Jonas Borchgrevink.

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4.3 stars on average, based on 57 rated postsGreg Thomson is a full-time crypto writer and digital nomad. He eats ICOs for breakfast and bleeds altcoins. Wherever he lays his public key is his home.




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Regulation

U.S. Federal Judge Says Initial Coin Offerings Fall Under Securities Laws

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A U.S. federal judge has ruled that initial coin offerings (ICOs) may fall under securities laws, handing regulators a major victory in their efforts to rein in the multi-billion-dollar crowdfunding industry.

Landmark Decision

The decision, which was handed down Tuesday by U.S. District Judge Raymond Dearie in Brooklyn, came in a case against Maksim Zaslavskiy, a fraudulent ICO promoter accused of raising money for assets that never existed. According to Bloomberg, the businessman was charged with conspiracy and two counts of securities fraud related to two coin offerings purportedly backed by investments in real estate and diamonds.

Zaslavskiy’s lawyer argued that the coin offerings in question were currencies and not securities, placing them outside the jurisdiction of the U.S. Securities and Exchange Commission (SEC). The businessman also said that securities laws are not clear enough to apply to ICOs.

“Per the indictment, no diamonds or real estate, or any coins, tokens, or currency of any imaginable sort, ever existed — despite promises made to investors to the contrary,” Dearie said, as quoted by Bloomberg. “Simply labeling an investment opportunity as a ‘virtual currency’ or ‘cryptocurrency’ does not transform an investment contract – a security – into a currency.”

While a jury will ultimately decide whether Zaslavskiy’s ICOs were securities, the indictment would support such a conclusion.

Zaslavskiy was charged in September 2017 for defrauding investors through several ICO scams, including REcoin, which was allegedly backed by real estate and diamonds.

SEC’s Jurisdiction

The ruling on Tuesday affirms the SEC’s long-standing position that coin offerings fall under federal securities laws. Previously, coin issuers had argued that there was a difference between “security” tokens and “utility” tokens.Under this classification, utility tokens fund the development of a project but are later used to purchase goods or services on the network. However, SEC Chairman Jay Clayton has repeatedly said he has not come across any coin offering that was not a security.

The agency uses the so-called Howey Test to determine whether an asset should be classified as a security. Using this as a baseline, an ICO is a security if it is an investment in money; invests in a common enterprise; expects to earn a profit; and whose profit is generated from the effort of others.

As a security, an ICO would have to satisfy provisions set forth by the SEC Investment Company Act of 1940 in order to raise funds. This means only accredited investors are eligible. What’s more, securities can only trade on regulated exchanges. To avoid getting bogged down by the SEC, many ICO projects have barred U.S. investors from participating in their crowdsale.

Roughly $7 billion has been raised this year by ICOs but funding has slowed considerably in recent months. The crowdfunding method raised in excess of $6 billion in all of 2017.

Disclaimer: The author owns bitcoin, Ethereum and other cryptocurrencies. He holds investment positions in the coins, but does not engage in short-term or day-trading.

Featured image courtesy of Shutterstock.

Important: Never invest (trade with) money you can't afford to comfortably lose. Always do your own research and due diligence before placing a trade. Read our Terms & Conditions here. Trade recommendations and analysis are written by our analysts which might have different opinions. Read my 6 Golden Steps to Financial Freedom here. Best regards, Jonas Borchgrevink.

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4.6 stars on average, based on 602 rated postsSam Bourgi is Chief Editor to Hacked.com, where he specializes in cryptocurrency, economics and the broader financial markets. Sam has nearly eight years of progressive experience as an analyst, writer and financial market commentator where he has contributed to the world's foremost newscasts.




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Market News

Reserve Bank of India Launches Cryptocurrency Research Unit

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India’s cryptocurrency saga has taken another unique turn. According to the Economic Times, the country’s central bank has established a new research unit dedicated to blockchain and cryptocurrency, a sign policymakers are exploring new pathways for regulating disruptive technologies.

Discreet Formation

Under the direct supervision of the Reserve Bank of India (RBI), the new research unit has been tasked with not only exploring emerging technologies but possibly draft rules for their implementation.

“As a regulator, the RBI also has to explore new emerging areas to check what can be adopted and what cannot,” an unnamed source told the Economic Times. “A central bank has to be on top to create regulations. This new unit is on an experimental basis and will evolve as time passes.”

Although the RBI confirmed as far back as September that research into cryptocurrencies was underway, officials have been heavily criticized for their lack of guidance in regulating digital assets. An information request submitted back in April found that the RBI implemented new cryptocurrency regulations without conducting research or consulting experts.

Since early July, state-regulated financial institutions have been barred from servicing digital currency exchanges and their lenders. The new regulation essentially stamps out fiat-to-crypto transactions. As Hacked reported earlier month, black market methods such as Dabba have rushed to fill the void.

Detailed Guidelines Expected

Public and anonymous sources close to the Indian government have confirmed that a blanket ban on cryptocurrency dealings is unlikely to continue in the future. Last month, a senior official from India’s Ministry of Finance confirmed that new cryptocurrency guidelines are already being developed and could be introduced as early as September. It has even been reported that digital assets may be regulated as commodities, which would allow authorities clampdown on money laundering.

A senior official with India’s Department of Economic Affairs had previously stated that a draft bill will be presented to lawmakers in early July. It is not yet clear whether policymakers have reviewed the proposed guidelines.

The future of India’s cryptocurrency market is up in the air as digital currency exchanges, traders and lenders await a final Supreme Court decision on the matter. In July, the Supreme Court upheld the RBI’s blanket ban on crypto dealings despite several exchanges petitioning to get it revoked. Exchanges argued that the RBI’s policy is arbitrary and unconstitutional.

Disclaimer: The author owns bitcoin, Ethereum and other cryptocurrencies. He holds investment positions in the coins, but does not engage in short-term or day-trading.

Featured image courtesy of Shutterstock.

Important: Never invest (trade with) money you can't afford to comfortably lose. Always do your own research and due diligence before placing a trade. Read our Terms & Conditions here. Trade recommendations and analysis are written by our analysts which might have different opinions. Read my 6 Golden Steps to Financial Freedom here. Best regards, Jonas Borchgrevink.

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4.6 stars on average, based on 602 rated postsSam Bourgi is Chief Editor to Hacked.com, where he specializes in cryptocurrency, economics and the broader financial markets. Sam has nearly eight years of progressive experience as an analyst, writer and financial market commentator where he has contributed to the world's foremost newscasts.




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