Brad Garlinghouse, the CEO of Ripple, has publicly shared his thoughts on the ongoing legal efforts by the U.S. Securities and Exchange Commission (SEC) to classify Ethereum (ETH) as a security. Speaking on the X platform, Garlinghouse pointed out the SEC’s historical difficulties in regulating the cryptocurrency industry, including its failed attempt to classify XRP as a security. He questioned when the commission would recognize its potential defeat in trying to classify ETH in a similar manner.
The discussion surrounding Ethereum’s classification has gained momentum after Paul Grewal, Coinbase’s Chief Legal Officer, publicly defended ETH, arguing that it does not meet the criteria of a security. Grewal’s comments have added weight to the debate. This comes after the SEC’s unsuccessful attempt to classify XRP as a security, which was finalized by U.S. District Judge Analisa Torres in July 2023.
The legal journey of XRP sheds light on the complex regulatory landscape that cryptocurrencies face in the U.S. In 2020, the SEC accused Ripple of offering XRP as an unregistered security. However, after a lengthy legal battle, Judge Torres ruled that XRP itself is not a security and that many of Ripple’s transactions involving XRP did not constitute investment contracts. However, the court did find that Ripple’s institutional sales violated U.S. laws. The consequences of this violation are still pending, with the SEC expected to file a brief on remedies.
The SEC’s efforts go beyond Ripple and aim to regulate the broader U.S. crypto industry. The commission has filed lawsuits against several exchanges and has classified various cryptocurrencies as securities, including SOL, MATIC, and ADA. The recent move to classify Ethereum as a security has surprised many, considering previous statements by SEC officials suggesting that Ethereum falls outside their regulatory jurisdiction.
The potential classification of Ethereum as a security carries significant implications for the cryptocurrency market. In 2018, Bill Hinman, the former director of corporate finance at the SEC, stated that ETH was not considered a security. This allowed Ethereum to be treated as a commodity, with futures contracts listed on CFTC-registered exchanges like the Chicago Mercantile Exchange (CME). Reversing this position could hinder the launch of a spot-based Ethereum ETF, which many crypto enthusiasts are eagerly anticipating.
Expectations for an Ethereum ETF were high, with predictions of approval by May 2024. However, the recent actions by the SEC have dampened hopes for a timely launch. The outcome of the SEC’s legal campaign against Ethereum remains uncertain, and it could have implications for regulatory approaches and the future of cryptocurrency investments in the U.S.
Brad Garlinghouse’s statements reflect concerns within the industry about the SEC’s regulatory strategies. As the legal landscape continues to evolve, the crypto community closely watches these disputes, knowing that the outcomes could shape the regulatory and operational environment for years to come.
