Ripple Lawyers Ask S.D.N.Y. Judge to Include Bittner v. U.S. in Its’ Summary Judgment Order
The Supreme Court decided Bittner v. U.S. on February 28, 2023, and Ripple’s Lawyers believe the ruling favors their client’s position in SEC v. Ripple 20-CV-10832, currently pending before the Hon J. Torres in the Southern District of New York. The dispute centers on whether XRP, a token issued by Ripple, was issued in violation of any, or several, SEC regulations.
What Are Blockchain Layers?
If you are unfamiliar with Bitcoin, you may have heard the phrase “Layer 2” or “Layer 3” used in connection with blockchain networks. Phemex.com offers a helpful summary:
• Layer 1 blockchain refers to the underlying blockchain architecture.
• Layer 2 blockchain refers to various protocols that are built on top of layer 1 to improve the original blockchain’s functionality.
• Layer 3 is represented by blockchain-based applications, such as decentralized finance (DeFi) apps, games, or distributed storage apps.
Among the notable layer 2 projects on Bitcoin are the Lightning Network, Liquid Network, and Omni Layer. Lightning Network (LN) is a layer 2 Bitc oin protocol that offers users a fast micro-payment platform. While crypto payments conducted via layer 1, the BTC chain itself, are slow and expensive, payments conducted via LN are executed very quickly and involve very low transaction fees.
The average transaction on Lightning Network is confirmed within seconds, and virtually all transactions are confirmed in less than a minute. In contrast, BTC layer 1 transactions take several minutes to confirm on average, and some transactions may remain in an unconfirmed state for days. For those who prefer a visuals, this graphic from Bitcoin Magazine, an online publication dedicated to Bitcoin news and developments, shows the connection between blockchain network layers:
Treasury Secretary Janet Yellen and SEC Chairman Gary Gensler have each publicly stated that they do not view Bitcoin as a Security. Chairman Gensler has gone so far as to state Bitcoin is the only digital currency that isn’t a security.
The SEC has rejected dozens of requests from financial groups to sanction a Bitcoin Spot ETF. This has led Forbes to predict the regulation of a spot Bitcoin ETF may be contingent on the passage of the Responsible Financial Innovation Act (RFIA) by Wyoming Senator Cynthia Lummis, which seeks to clarify what digital currencies are (under US law), how they can be classified (commodities, ancillary assets, and securities) and how tax laws apply to them. Furthermore, the bill aims to establish the bodies in charge of regulating specific digital assets, as well as how anti-money laundering regulations may be applied.
Grayscale Investments (“GBTC”) has pushed back on the legal propriety of these decisions. Saying they mount to arbitrary, capricious and discriminatory actions. "The Administrative Procedure Act and Exchange Act require rules and regulations to be applied without favoritism for one type of product or another," said Grayscale Chief Legal Officer Craig Salm.
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ESG is an investing strategy that takes into account environmental, social and corporate governance factors in addition to financial analysis. It is popular with major pension funds that invest the retirements of millions of workers as well as retail investors. Bitcoin miners have been hearing this phrase more lately.
Morgan Stanley’s ESG Review Group recently observed the growing popularity of cryptocurrency has created a new wrinkle for investors—how to balance its potential upside against its inherent environmental and social impacts. Among some of the perspectives Morgan Stanley published in its findings:
“Cryptocurrencies could be one way to increase access to financial systems for the unbanked. Anyone with a smartphone or laptop and internet connection can access cryptocurrencies, which arguably is a lower requirement than that of traditional bank accounts.”
“Cryptocurrencies can support faster and more affordable cross-border transactions—specifically, giving people an easier way to send money to relatives in other countries— and may be a better alternative in countries with volatile or depreciating local currencies.”
“In 2021, an estimated $14 billion of cryptocurrency, or just 0.15% of crypto volume traded, was associated with criminal activity.”
Analysts covering cryptocurrency and sustainability at Morgan Stanley argue that new crypto regulations are likely to change the rules of investing in crypto-related products and likely the scope of services offered around cryptocurrency as well.
Three Main Costs of Mining for Bitcoin
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CoinGate and BitMart – two cryptocurrency exchange platforms – relisted XRP for trading recently. XRP is the token used by Ripple. According to Ripple’s website, their corporate mission is, “Build breakthrough crypto solutions for a world without economic borders. Through blockchain technology, Ripple enables global financial institutions, businesses, governments, and developers to move, manage and tokenize value, helping to unlock greater economic opportunity for everyone, everywhere.
Many exchanges – including Coinbase, Binance, and Kraken – suspended XRP trading after the SEC announced an enforcement action against XRP. XRP is the native cryptocurrency of XRP Ledger, which is an open-source, public blockchain designed to facilitate faster and cheaper payments. Trading XRP remains suspended on the majority of exchanges.
Sending payments overseas using the legacy financial system typically takes one to four business days and can be expensive. If a person uses XRP as a bridging currency, it’s possible to settle cross-border transactions in less than five seconds on the open-source XRP Ledger blockchain at a fraction of the cost of the more traditional methods, according to CoinDesk.
The case is In re Celsius Network LLC, No. 22-10964 (MG).
The Brookings Institute prepared a synopsis of the “competing priorities facing U.S. Crypto regulations” in the coming years. The commentary prepared by Brookings accurately reflects the Biden administration’s attitude towards cryptocurrency right now: “to both support development of cryptocurrencies and to restrict their illegal uses”.
However, a laissez-faire attitude towards regulation today may make the industry much more difficult to meaningfully regulate even three or four years from now. And it means more uncertainty in the near future for cryptocurrency holders. Administrative agencies, the Executive branch, the Legislative branch and even the Courts have had relatively little to say about cryptocurrency in the previous decade. Seeing federal and state legislatures taking the first stabs at regulating “PoW” vs. “PoS” consensus models indicate all of these different governing bodies will seek to exert more influence over this growing sector.