Ripple’s release of William Hinman emails reveals SEC’s internal discord over crypto regulation, though they offer limited legal advantage to Ripple and XRP.
Following intense legal battles, Ripple, the cryptocurrency platform, unveiled a trove of emails by former Securities and Exchange Commission (SEC) director, William Hinman. These emails pertained to Hinman’s 2018 speech in which he declared Bitcoin and Ethereum as non-security assets. Despite the high expectations surrounding the release of the Hinman emails, they offered little new evidence that could assist Ripple in its ongoing lawsuit against the SEC.
The conversations within Hinman’s emails primarily revolved around preparation for his speech in June 2018, where he presented his thoughts on the regulatory framework for various digital assets. The focus was mainly on his stance that Bitcoin and Ethereum were not securities. The crypto community on Twitter anticipated these emails to reveal a preferential treatment from the SEC towards Bitcoin and Ethereum. However, legal experts expressed doubt on how much these emails could aid Ripple.
Public Opinion Vs. Legal Standpoint
The general consensus among observers was that the emails were not as valuable from a legal perspective as they were for creating public support for changes in cryptocurrency regulations. This sentiment was echoed by Austin Campbell, a managing partner at Zero Knowledge Consulting. He emphasized that the emails primarily exposed the SEC’s questionable actions against cryptocurrency, rather than providing a substantial legal win for Ripple.
Similarly, Gabriel Shapiro, General Counsel for Delphi Labs, referred to the released emails as inconsequential for Ripple’s lawsuit. Ripple Labs CEO, Brad Garlinghouse, expressed outrage over Hinman’s decision to proceed with his speech amidst internal disagreement at the SEC. He found it troubling that the SEC pursued legal action against Ripple Labs and its founders, despite the obvious confusion created by their Division Head.
Analyzing the Emails: Drafts, Revisions, and Concerns
A close analysis of the numerous emails exchanged in the week leading up to Hinman’s speech at the Yahoo Finance All Markets Summit reveals the concerns and suggestions voiced by the SEC staff. They contributed towards multiple drafts of the speech to define the SEC’s stance on crypto regulation. The discussions ranged from clarifying the SEC’s views on the application of the Howey Test to making the speech title catchy.
In an early draft of the speech, Hinman stated his opinion that federal securities laws’ disclosure requirements did not apply to Bitcoin or Ether in comparison to other tokens. However, there were disagreements and concerns raised by the SEC staff over suggesting Bitcoin as a non-security asset, fearing its potential impact on future SEC actions.
Delicate Balancing Act: Qualifying the Stance on Crypto
The back-and-forth conversations within the emails highlighted the SEC’s struggle to articulate its views on cryptocurrencies. In one draft of the speech, the wording surrounding Ether was decided to be finalized post-meetings with Ethereum co-founder Vitalik Buterin and the Ethereum Foundation. Subsequently, Hinman expressed that Ether did not qualify as a security after taking into consideration the fundraising that accompanied its launch.
In the final speech delivered at the summit, Hinman presented a slightly modified version of this section, with added information on disclosure requirements. He pointed out that just like Bitcoin, applying the federal securities laws’ disclosure regime to current Ether transactions wouldn’t bring much value.
The Ripple Legal Battle: Access to Hinman Emails
For months, Ripple’s lawyers have battled to obtain Hinman’s emails as part of their defense against the lawsuit filed in December 2020 by the SEC. The lawsuit accused Ripple of selling unregistered securities. Although Ripple’s lawyers had access to the emails since the previous October, the emails have only now become public following a federal judge’s denial of an SEC motion to keep them sealed.
Post the release of Hinman’s emails, Ripple’s cryptocurrency XRP experienced a brief price hike from $0.53 to $0.56 before stabilizing around $0.51.
Ripple Vs. SEC: Unraveling the Hinman Documents
Prominent lawyer in the XRP community, Bill Morgan, claimed that Ripple’s Chief Legal Officer, Stuart Alderoty, and Brad Garlinghouse had not exaggerated the implications of the emails. He pointed out that the documents unveiled that prior to his speech, Hinman had engaged Ethereum founder Vitalik Buterin to understand Ethereum’s operations better.
The documents also indicated growing opposition within the SEC towards the recommendation of classifying Ether along with Bitcoin as a non-security in the lead up to Hinman’s speech. This tension, coupled with Hinman’s decision to disregard internal advice and classify ETH as a non-security in his speech, sparked disappointment in the XRP community.
Ripple’s Defense and Potential Impact on XRP
However, Bill Morgan also discovered arguments within the documents that could favor Ripple’s defense against the SEC. Several communications within the SEC suggested that the officials knowingly allowed Hinman’s speech to sow confusion, providing fewer details to the industry participants. This approach provided the SEC with more flexibility in dealing with cryptocurrencies. This realization could strengthen Ripple’s fair notice defense.
Interestingly, the SEC’s internal views were revised on certain factors deemed “not relevant” or indicative of a non-security asset. For example, the SEC initially considered lockups as irrelevant and suggestive of a non-security. However, they later reversed this viewpoint. The publication of the Hinman documents boosted the XRP price, indicating a positive reception by investors.
Future Prospects for XRP
Despite the crackdown by the SEC, XRP’s price has been showing bullish signs by sustaining higher levels. The XRP price chart reveals a strong support level at $0.486, which has not been breached despite intense sell-offs. A potential breakout above the $0.55 resistance could trigger a substantial recovery in XRP’s price. The 20-and-50-day Exponential Moving Average has been a reliable support during the recent recovery phase, indicating the overall bullish sentiment among traders.