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CFTC Commissioner Sees Ripple Court Decision as Path to U.S. Regulatory Clarity

Last Updated July 18, 2023 2:58 PM
Omar Elorfaly
Last Updated July 18, 2023 2:58 PM
Key Takeaways
  • XRP secured a part-victory over the SEC in a recent New York court ruling.
  • XRP tokens were not considered securities when sold programmatically on spot exchanges.
  • CFTC Commissioner says regulators need to work together.

Ripple Labs’ part-victory in its landmark XRP battle with the Securities and Exchange Commission (SEC) could signal the first steps towards regulatory clarity for the United States cryptocurrency sector.

CFTC Commissioner Caroline Pham weighed in on the apparent lack of clarity over cryptocurrency regulations in the U.S. and whether her agency and the SEC would begin to bring stability to the sector in an interview with Bloomberg.

“Last year, I said that we were going to see regulatory clarity first in the courts around the definition of a security and I think you’ve seen that with some very big court opinions that have been released,” Pham said.

The reference is to Southern District of New York judge Analisa Torres ruling that XRP was not considered a security when sold programmatically on cryptocurrency exchanges. The SEC was somewhat vindicated, as Torres also ruled that XRP met the conditions of a security set in the Howey Test when it was sold to institutional investors

Holistic Approach Needed

The SEC has copped criticism from the wider cryptocurrency ecosystem for its lack of guidance and clarity towards the sector. Exchanges like Coinbase had sought to get regulatory thumbs up from the institution for a number of its offerings in the past without luck, only to find themselves in the crosshairs of a multi-faceted lawsuit from the SEC.

The regulator is suing Coinbase as well as Binance.US for what it alleges are separate securities violations, while a number of cryptocurrency tokens have also been labeled as securities by the SEC.

The likes of Polygon (MATIC), Solana (SOL) and Cardano (ADA) were among those listed as securities, with the news having a major effect on the value of the respective tokens.

The CFTC Commissioner said that upcoming international and domestic working groups focused on the cryptocurrency sector would present an opportunity to create a holistic approach.

“It is important that the United States regulators work together,” Pham added.

Promise of Tokenization 

Real world and digital asset tokenization was another key talking point, with Pham highlighting the fact that mainstream financial institutions have been exploring the possibility for half a decade.

“Institutions, central banks and asset managers have known since at least 2016 and 2017 that there’s a real opportunity to modernize financial market infrastructure through tokenization of real assets,” Pham said.

Distinguishing clearly between the cryptocurrency sector, Pham continued to unpack the potential of taking securities and managing them on blockchain infrastructure.

“You’ve had investment banks talk about a potential $4 to $5 trillion opportunity by 2030. Just today we had presentations about how you could save $2 billion in back office expenses in clearing and settlement. These are real numbers in real markets.”

Pham added that it’s crucial to consider using technological advancements like blockchain technology while ensuring that investment protection is not compromised.

Who’s Asking to Tokenize Real Assets?

Pham also suggested the time for theoretical use cases for blockchain-based tokenization of assets, citing a plethora of real world applications to date.

The CFTC Commissioner highlighted recent events like the European Investment Bank issuing its first ever digital bond in pound sterling, and Franklin Templeton’s U.S. Government Money market fund  “which has no objection from the SEC”.

The fund itself caught attention  as it looks to peg its share price to $1, much like the cryptocurrency ecosystem’s plethora of stablecoins. Tether (USDT) has a portion of its reserve in U.S. treasury bills. 

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