The crypto is here. Get used to it, Washington.

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The SEC probably did not expect a setback in its lawsuit against Ripple and the rise of the XRP military.

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After more than a decade rejecting the revolutionary potential of blockchain technology, Washington finally woke up in 2021. As the total market capitalization of all blockchain-enabled cryptocurrencies exceeded $ 3 trillion, the bandits of Beltway realized the immensity of the crypto market: big settlement and big campaign donations.

Chamber and Senate: parallel universes on Capitol Hill

A small but growing bipartisan cadre in Congress is starting to work with the U.S. crypto industry on a regulatory framework to bridge innovation in the U.S. economy while guarding against fraud and crime. That effort took a step forward in a House Banking Committee marathon hearing this month, handled with bipartisan aplomb by committee chairperson Maxine Waters (D-CA) and ranking member Patrick McHenry (R- NC). The quality of the dialogue between the committee and a panel of prominent crypto leaders has shown that members are doing their homework and that the industry is cooperative in developing a regulatory framework. The risks and rewards were discussed frankly with a minimum of demagoguery.

In the Senate’s parallel universe, many of its cranky leaders view cryptocurrency as witchcraft. This jarring disconnect was exposed during the Senate Banking Committee’s counterpoint hearing with talking points seemingly drawn from Mondale-Ferraro’s ill-fated presidential campaign in 1984. Witnesses, or “witch hunters” so to speak, included the obviously anti-crypto law professor Hillary Allen and Alexis Goldstein of the pseudo-professional of the Open Markets Institute. The purpose of the hearing seemed to be to inject fear, uncertainty and doubt into the case. Most questions were addressed to Allen and Goldstein with an inordinate presence of Comrade Elizabeth Warren (D-MA). Sadly, the two other witnesses who could have provided facts and technical expertise – Dante Disparte of Circle and Jai Massari of Davis Polk – were largely ignored.

The parallel universe stretches from the Senate side of Capitol Hill to the Securities and Exchange Commission (SEC). At every public appearance, SEC Chairman Gary Gensler has outlined his modus operandi for crypto: regulation by application. There doesn’t seem to be a desire to write clear rules, offer unambiguous advice, or employ a limiting principle against any player in space. As previously stated, Gensler, like a good party agent, uses the SEC as a stepping stone to a Cabinet-level appointment of Secretary of the Treasury. But like Warren and others, it seems Gensler miscalculated that crypto would be an easy target and that the securities laws of the 1930s would be effective weapons.

Tears in SEC strategy

The SEC case against Ripple just marked its first anniversary. It continues to evolve like the cryptocurrency lawsuit of the century, possibly becoming the defining case since the 1946 Supreme Court ruling on Howey, the decision to which Gensler and Warren suspend their ambition. Howey defined what constituted 20th century security decades before the Internet, blockchains, and decentralized registries were conceived. Given Congress’s delay in updating the Securities Exchange Act for the digital age, parties will seek it out in court.

The SEC’s awkward lawsuit against Ripple essentially argues that the agency is not bound by due process or fair notice and can provide a storm of arbitrary and capricious guidelines to crypto companies and sue them without understanding what is going on. was illegal. Further, he argues that the Howey ruling gives the agency the power to state that the crypto token itself is security, not just the way it was packaged and sold to others. Indeed, many holders of the XRP digital asset did not know anything about the Ripple company, but the SEC alleges they were in a joint venture. The heart of the defense is that the SEC has caused $ 15 billion in damage to the bewildered holders of the XRP digital asset with its wayward behavior.

Gensler inherited the Ripple case from a Republican administration, but his policies demonstrate even more zeal for a power-drunk SEC and the fervent belief that Ripple and its top executives should have known how to register XRP as security eight years ago. , when the SEC barely knew what blockchain was. Southern New York District Judge Analisa Torres is expected to deliver decisive decisions in the case early next year. This will encourage Gensler to prepare attacks on other platforms or condemn the SEC for overstepping its authority.

Dangerous game: partisan politics before an election

The Democratic Party’s anti-crypto faction, with its razor-thin margin, recklessly demonizes the multibillion-dollar crypto space. The ever-cautious industry associations won’t admit it, but millions of retail cryptocurrency holders make no secret of their growing angst towards Gensler and his Democratic allies. The Pew Research Center reports that 27 million Americans are either current or past retail holders of digital assets, and the numbers skew young and disproportionately black, Hispanics and Asians. Disruptive innovation frequently opens markets for people at the bottom of the pyramid, threatening institutionalized finance at the top. The anti-crypto stance of many Democrats hurts the very people the party claims to represent.

Rise of the XRP army

Traders are rallying across multiple social media platforms, unearthing embarrassing information about senior SEC officials past and present, and flooding congressional offices with thousands of messages demanding that Gensler be brought under control. Their efforts led a government watchdog to sue the SEC and investigate a possible conflict of interest of SEC officials in the Ripple case. More than 60,000 retailers holding XRP have been admitted as court friends against the SEC, the agency supposed to protect them. Dozens of crypto influencers with their own media platforms have a collective following that rivals cable news networks, and they’re starting to talk about the midterm elections. Republicans don’t need much effort to get the crypto vote as long as Gensler and Democrats continue to self-destruct.

If 2021 was the year that crypto showed its economic promise, 2022 will be the year that crypto holders show their legal and political might. Much like those who said a decade ago that Bitcoin would never be worth anything, many will eat their words by regretting that the war on crypto was just fun.

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