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This month in crypto: Federal court rules Ripple is not a security… this changes everything

this court case, is arguably the most important thing that’s ever happened in the history of crypto. Here's why...

Harry Hamburg
Harry Hamburg
12 min read

Well, I was going to title this month’s issue “yawn”, because there really wasn’t a lot happening.

But then, crypto did what it does best, and threw a curveball out of nowhere.

On Thursday, we reached the conclusion of a long-running court case between Ripple and the Securities and Exchange Commission (SEC).

This case has been going on, in the background, for the last three years.

If the SEC won, Ripple would be declared a security, which would de facto make many other cryptos securities.

If Ripple won, it would be declared not a security, which would de facto make many other cryptos not securities.

Now, before we talk about the outcome of this court case, let’s put it into proportion.

If you’ve seen the Oppenheimer trailer, there’s a scene where one of the characters describes what they’re doing as, “the most important thing that’s ever happened in the history of the world.”

Well, this court case, is arguably the most important thing that’s ever happened in the history of crypto.

On Thursday the 13th of July, the judge ruled that Ripple is not a security.

But here’s where things get really interesting.

Because the court ruled that Ripple was a security when institutional investors first bought it, but it wasn’t a security when it was traded on public exchanges.

Here’s a link to the judgement in full.

And here’s the conclusion:

For the foregoing reasons, the SEC’s motion for summary judgment is GRANTED as to the Institutional Sales, and otherwise DENIED. Defendants’ motion for summary judgment is GRANTED as to the Programmatic Sales, the Other Distributions, and Larsen’s and Garlinghouse’s sales, and DENIED as to the Institutional Sales.

Basically, the court ruled that when Ripple sold XRP to VCs and institutions, it was a security. But when Ripple was traded on exchanges by the public it was not a security.

So, that means that the tactic all the big crypto projects have been using recently – selling 90% of their token supply to VCs with various lockup agreements – makes them securities.

But, if these same tokens were to trade on public exchanges, they would not be securities.

This absolutely changes the entire dynamic of the crypto industry today.

By gatekeeping and letting VCs get in at ridiculously cheap prices, all these centralised crypto projects are shooting themselves in the foot.

If they don’t want to be considered as securities, they need to be released to the public, rather than sold at insane discounts to VCs.

Here’s that part of the ruling in more detail:

Having considered the economic reality of the Programmatic Sales, the Court concludes that the undisputed record does not establish the third Howey prong. Whereas the Institutional Buyers reasonably expected that Ripple would use the capital it received from its sales to improve the XRP ecosystem and thereby increase the price of XRP, see Kik, 492 F. Supp. 3d at 180; cf. supra § II.B.1, Programmatic Buyers could not reasonably expect the same. Indeed, Ripple’s Programmatic Sales were blind bid/ask transactions, and Programmatic Buyers could not have known if their payments of money went to Ripple, or any other seller of XRP. …
Further, it is not enough for the SEC to argue that Ripple “explicitly targeted speculators” or that “Ripple understood that people were speculating on XRP as an investment,” SEC Mem. at 28, because a speculative motive “on the part of the purchaser or seller does not evidence the existence of an ‘investment contract’ within the meaning of the [Securities Act],” Sinva, Inc. v. Merrill, Lynch, Pierce, Fenner & Smith, Inc., 253 F. Supp. 359, 367 (S.D.N.Y. 1966). “[A]nyone who buys or sells[, for example,] a horse or an automobile hopes to realize a profitable ‘investment.’ But the expected return is not contingent upon the continuing efforts of another.” Id. (citing SEC v. C.M. Joiner Leasing Corp., 320 U.S. 344, 348 (1943)). The relevant inquiry is whether this speculative motive “derived from the entrepreneurial or managerial efforts of others.” Forman, 421 U.S. at 852. It may certainly be the case that many Programmatic Buyers purchased XRP with an expectation of profit, but they did not derive that expectation from Ripple’s efforts (as opposed to other factors, such as general cryptocurrency market trends)—particularly because none of the Programmatic Buyers were aware that they were buying XRP from Ripple.

How crazy is that.

And this isn’t just pie in the sky thinking. It’s the same conclusion Bloomberg came to as well (although they see it as a bad thing).

From Bloomberg:

Some are taking this early decision to mean Coinbase and others accused of listing potential securities may now be in the clear, at least when it comes to the general public buying on their exchanges. But while the possible disruption of forcing retail-facing businesses to register or reinvent their business model is possibly avoided, that’s only one side of things.
Many successful crypto projects these days rely on early sales of their tokens to institutional investors and venture capitalists prior to their public launch in order to get off the ground, often pre-registering those efforts with regulators to avoid any potential repercussions. Many on the SEC’s list of possible securities had conducted these types of arrangements, and the SEC cited those examples as reasons the tokens should fall under its remit. With Thursday’s ruling, that type of pre-funding might be done for, unless VCs fancy buying on the open market when prices are subject to the same volatility as everyone else.

Oh boohoo, those poor VCs. They won’t be able to make 10,000% dumping onto the public anymore.

Meanwhile, the public won’t have to settle for getting in after VCs have already made 10,000% on their investments.

I really couldn’t think of a better outcome for crypto, and the values it was built on.

Now, obviously crypto prices exploded on this news, and as I write, in the last 24 hours:

  • Ripple is up 70%
  • Stellar is up 57%
  • Solana is up 50%
  • Cardano is up 24%
  • Polygon is up 20%
  • Avalanche is up 19%

And much of the market is also up by double digits.

And on top of everything, as Bloomberg noted, this makes is much more likely that Coinbase and Binance will win their own cases against the SEC, which would be equally huge.

Of course, this is crypto, and I’m sure there will soon be another curveball thrown in the other direction. But for now at least, things are looking up.

Now on with the issue I wrote a few hours before this court ruling came out…

You know how I like to say, “there’s never a dull day in crypto”?

Well, today might just be that day [Oh how wrong I was!].

Ever since the BlackRock ETF news – which I covered extensively in this month’s premium issue: The ETF special, or: the battle for Bitcoin’s soul – crypto has been… quiet.

So, today I’m going to bring you the most interesting stories I’ve seen over the last few weeks. But, honestly, none of them are world-changing. So feel free to just skim this one.

Hong Kong is going full crypto – at the behest of China, who banned crypto

In the wake of America’s war on crypto regulatory crackdown, every other financial centre is trying to fill the void and become the crypto hub.

The UK is rolling out its landmark regulation – which I’ll cover in detail in next month’s premium issue – the EU has pretty much completed its Markets in Crypto Assets (MiCA) legislation, and now Hong Kong is shooting its shot.

From Bloomberg (non-paywalled link):

Hong Kong wants to become an international crypto hub even as jurisdictions like the US cast a wary eye on the sector. In June, a new licensing system kicked off to regulate crypto exchanges offering trading in tokens like Bitcoin and Ether. The regime is part of Hong Kong’s effort to attract fresh capital and talent back to the city, after its reputation was tarnished by years of harsh Covid-19 curbs and a crackdown on political dissent. Initial reaction was largely positive from digital-asset firms, but there was a lack of major investment pledges. Hong Kong’s push appears to have quiet backing from Beijing even as mainland China sticks with a ban on crypto trading.

But the thing is, imagine you’re a crypto company…

You were happy doing business in America, things were going well (if we ignore the monster in the room of the bear market, the financial crash etc.) and then Gary Gensler of the Securities and Exchange Commission (SEC) comes and ruins your day.

Gary says all cryptos except Bitcoin (and maybe Ethereum, but maybe not Ethereum) are unregistered securities. And he’s going on a righteous crusade to banish them from his shores.

He starts suing projects, exchanges and key people with abandon. It’s clear you have to leave.

So, where do you go?

Oh, look. Hong Kong is welcoming you in with open arms.

But hang on. Didn’t Hong Kong cease being a democracy recently? And aren’t pro-democracy activists now being hunted to the ends of the earth by China?

And isn’t China famous for banning crypto over and over again?

So, yeah, you could move your operations to Hong Kong – which is essentially the same as moving them to China – or you could just not do that.

You could, instead move them to Europe, or even the UK – both of which are at least reasonably democratic.

Still, China’s constant banning of crypto (it seems to ban it at least once a year) hasn’t stopped Hong Kong’s banks opening up to (let’s be honest, being forced to open up to) crypto.

Reuters on the 15th of June:

Hong Kong's banking regulator said on Thursday it had, in April, asked lenders operating in the region to try and meet the business needs of licensed crypto exchanges, responding to a report saying banks were under pressure to take such exchanges on as clients.
The Hong Kong Monetary Authority's (HKMA) comments were in response to a Financial Times report which said lenders including HSBC (HSBA.L) and Standard Chartered (STAN.L) were facing pressure from Hong Kong's central bank to take on crypto exchanges as clients.
In its bid to emerge as a global crypto hub, Hong Kong has been pulling out all stops, from courting mainland China crypto firms to floating plans of testing a digital dollar in its mortgage market.
The UK-based lenders, and the Bank of China were questioned by the Hong Kong Monetary Authority last month on why crypto exchanges were not being accepted as clients, the report added.
The HKMA, in a letter to lenders on April 27, said diligence on potential customers should not "create undue burden", especially "for those setting up an office in Hong Kong."

And then Bloomberg (non-paywalled link) on the 27th of June:

HSBC Holdings Plc is offering trading of crypto-linked exchange traded funds to customers in Hong Kong amid a push by the city to establish itself as a hub for the alternative asset class.
HSBC, which is the Chinese territory’s largest bank, is offering trading such ETF’s via its app to customers in the city. The product comes with requirements to read through educational materials and disclosures. It’s unclear when the lender started offering such services.
A spokesman for the bank didn’t comment.

Isn’t it strange how notoriously anti-crypto banks, like HSBC, are now offering crypto prodicts and services in Hong Kong?

Do you think that was their idea, and do you think they’re happy about doing it?

Or, do you think they were forced to do it by the Chinese authorities, and they’re not happy about it at all?

I think HSBC’s spokesperson made their position quite clear by declining to comment.

Yeah, why wouldn’t you want to leave the US, where the SEC can crush your business on a whim, and move to ChinaHong Kong, where the Chinese authorities can crush your business on a whim?

Brazil’s Central Bank Digital Currency (CBDC) has a sinister edge

Did you know Brazil is creating a CBDC?

And did you know it’s actually quite far along in the process?

And did you also know that it’s put provisions in the code to be able to freeze and drain people’s accounts with a few clacks of the keyboard?

From Coin Telegraph:

A blockchain developer who claims to have reverse-engineered the source code of Brazil’s pilot central bank digital currency (CBDC) has discovered functions in the code that would allow a central authority to freeze funds or reduce balances. …
The functions included freezing and unfreezing accounts, increasing and decreasing balances, moving currency from one address to another, and creating or burning digital real from a specific address.

To be honest, I’d be surprised if a CBDC didn’t have these functions. And I wrote about the reasons why in my CBDC explainer way back in 2020.

Here are the key points from that piece:

Unlike traditional cryptocurrencies, the Central Bankers will have total control of the CBDC’s supply, interest rates and even transactions.

With a CBDC the Central Bank could just decide to blacklist a particular individual, company or country on a whim.

It could also enforce automatic negative interest rates, which citizens would have to swallow.

And it could increase or decrease the monetary supply with a few clicks of a mouse.

So, if we were to look at this through utopian-tinted glasses, we could say that CBDCs will let us:

  • Travel freely and spend our money anywhere
  • Save huge amounts on international bank transfers
  • Get more money directly into the hands of the people by cutting out the banks
  • Encourage international collaboration through reduced fees and faster payments

However, if we were to look at this development through the ever-popular dystopian-tinted glasses, we could say that CBDCs will let governments:

  • Know exactly what we are spending, where we are spending it, and how we are spending our own money
  • Impose whatever new currency rules they like on us – for example negative interest rates, so people are forced to spend or lose money
  • Block any individual, company or country they want from using their currency
  • Take money out of anyone’s bank account they liked, at any time they liked, and for whatever reason they decided

When you look at it like that, it’s easy to see why CBDCs make a lot of people uneasy.

But like most technology, CBDCs are merely a tool. In this case, one that makes the monetary system work more efficiently.

Used by good people, they have the power to do good. Used by bad people, they have the power to do ill.

I guess as citizens, we have to assess if our leaders are more likely to use them for the former or the latter.

Major Bitcoin ETFs refile and name Coinbase as their custodian – Coinbase stock goes up

If you read this month’s ETF special, you’ll know that all these new Bitcoin ETF filings hit a roadblock when the SEC called them “inadequate”.

They took that to mean that they had to disclose who their custodians would be for their “surveillance-sharing”, and it turns out, they’re nearly all using Coinbase.

Which is why Coinbase stock is up 68% over the last month, which has boosted its year to date (YTD) gains up to 160%.

A graph of stock market

Description automatically generated
Source: Google Finance

And that’s despite it getting sued by the SEC, as we looked at in last month’s free issue: high noon at the crypto corral.

Coinbase is actually beating out Bitcoin’s impressive YTD gains of 85%.

But over the last two years, Bitcoin is only down 2%, while Coinbase is down 60%.

People are finally realising that cartoon jpgs are pointless

This month also saw Bored Ape Yacht Club NFTs fall 88% from their all-time highs (ATH).

According to Decrypt, they’re at their lowest prices since August 2021.

Although, their floor price is still an insane $55,000.

I always wondered if, in the next bear market, NFTs would switch from a badge of honour to a badge of shame. But that doesn’t seem to be happening… yet.

Meanwhile people are starting to use NFTs in useful ways – like pawning Patek Philippes

Here’s a much more interesting use for NFTs… pawning Patek Philippes.

From decrypt:, a DeFi protocol for NFT lending, has begun facilitating loans between strangers that use luxury watches as collateral, and employ NFTs to guarantee those loans’ terms.
In the past few weeks, Arcade users have lent three Rolexes to anonymous lenders for cash—a Daytona, for $20,000 at 15% APR; a GMT-Master II, for $14,500 at 12% APR; and an Explorer for $20,000 at 12% APR. The owner of the Daytona and the Explorer also lent a Patek Philippe watch for $35,000 at 12% APR. The loans’ durations range from 56 to 90 days.

It seems like if you have the money for a Patek, you probably don’t need to be using a hi-tech pawnbroker. But what do I know.

Still, it’s an interesting use case. And, as time goes on, we’ll see NFTs being use for many more useful things than just monkey jpgs, as I wrote in this feature back in 2021: The one thing everyone is missing in all this NFT hype… will be “so obvious” in hindsight.

Okay, that’s all for today.

Thanks for reading.


Full disclosure: At time of writing, I held the following cryptos: Ethereum, IOTA, Radix, Mina Protocol, Aleph Zero.

Disclaimer: This content does not constitute financial advice, tax advice or legal advice. Your money and how you choose to spend it is your responsibility. Nothing that appears here should be construed as investment advice or recommendations to buy or sell any securities, cryptos or investments. coin confidential does not offer investment advice. We merely provide information. Crypto investing is highly risky, and you could lose 100% of the money you put in. You should not base any investment decision solely on information we publish. We believe all information we publish to be accurate, but we cannot guarantee it. Always do your own research before making any decisions about your money. See the full disclaimer for more.

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Harry Hamburg

This is all, just like... my opinion, man.

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