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Ripple Legal Battle Deepens: CFTC Commodities Ethereum Verdict Could Upend SEC Lawsuit

Last Updated March 7, 2024 2:44 PM
Shraddha Sharma
Last Updated March 7, 2024 2:44 PM
By Shraddha Sharma
Verified by Peter Henn

Key Takeaways

  • CFTC Chairman Rostin Behnam says Bitcoin and Ethereum are commodities.
  • XRP community speculates on the implications of Ethereum’s ICO and its classification.
  • Lawyer John E. Deaton and community members challenged the idea that Ethereum and XRP fall under separate categories.
  • In 2023, a decision on Ripple’s secondary sales marked a partial victory for the XRP community.

Differing opinions on crypto are emerging from two major US regulatory bodies. At this time, Commodity Futures Trading Commission (CFTC) and the Securities and Exchange Commission (SEC) appear to be taking different stances. At the heart of this discord is the classification of Ethereum (ETH) as a commodity by the CFTC. This contrasts with the SEC’s more ambiguous stance.

The classification casts a new light on the ongoing Ripple (XRP) lawsuit. Now, however, the XRP community is pulling Ethereum back into the discourse.

Regulatory Rift in Crypto Classification

During a testimony before the House Committee on Agriculture, CFTC Chairman Rostin Behnam said Bitcoin (BTC) and Ethereum were commodities. In terms of compliance, the declaration directly counters the SEC’s oversight claims. Behnam warned of compliance conflict and potential conflicts within American financial market regulations if ETH is not considered a commodity. The contention arises from the SEC’s recent license to Prometheum. The special-purpose broker-dealer plans to include ETH on its platform.

The Ripple lawsuit’s complexity has intensified against this backdrop. According to previous comments by XRP lawyer John E. Deaton, who is now challenging Elizabeth Warren in the Senate, Ethereum and XRP do not fall under separate categories.

Notably, in July 2023, Judge Torres rendered a decision in the SEC and Ripple Labs case. It clarified that Ripple’s direct sales of XRP to institutional investors fell under the category of securities transactions. Conversely, sales conducted through secondary trading platforms did not qualify as securities.

With Bitcoin and Ethereum receiving a clearer status from the CFTC regarding their regulatory status, questions loom over XRP. Community members argue that if Ethereum’s Initial Coin Offering (ICO) could be deemed a non-security, the case for XRP being classified as a security weakens. As a result, this challenges the SEC’s basis for its lawsuit against Ripple.

Ethereum’s ICO and Ripple-SEC Battle

The debate over Ethereum’s classification traces back to a 2018 speech by former SEC official William Hinman, who allegedly  suggested that Ethereum, post-ICO, might not be a security. 

Amid the legal discourse a community member posted  on X, “Sounds like the CFTC chair is warning the SEC not to claim ETH as a security.”

Meanwhile, Ripple’s Chief Legal Officer, Stuart Alderoty, has pointed to broader issues of regulatory clarity.

On his Twitter account, Alderoty highlighted a judge’s criticism of the SEC’s regulations in ongoing litigation as being “so vague and loosey-goosey that nobody knows whether they’ll be at risk…,” referencing comments made during the NCPPR v SEC case heard in the 5th Circuit.

Alderoty also pointed out an instance where the SEC suggested a judge should consider a precedent set by another court, failing to mention that the precedent was based on a “default judgment.”

That said, a recent SEC motion that was approved has slightly postponed the lawsuit against Ripple. Meanwhile, the judge’s comments from the NCPPR v SEC case could also draw regulatory questions in the SEC v Ripple lawsuit.

However, XRP is currently struggling  to regain its all-time high price levels amid the legal entanglements, despite the cryptocurrency market’s overall positive momentum.

Regulations Unclear But Hope for Clarity

The conflicting views between the CFTC and SEC over crypto classifications mark the need for one regulatory standard.

As the Ripple lawsuit unfolds, the outcome could decide how cryptocurrencies are classified and regulated in the United States, affecting not only Ripple but the entire market.

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