It Was a Big Week

How Will Coinbase Benefit from Ripple's Win vs the SEC?

A faceless shadowy super coder signals a “V” for victory. Source: Priscilla Du Preez

Before I get started today, please know that I’m feeling a bit like Bloomberg’s James Seyffart as I sit down to write this.

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Hence, I won’t have room to write about all that I’d like to write about in this edition of the newsletter. I plan to write more this week.

With that said, let’s dive in.

Ripple Labs, Inc. scored a big (partial) victory over the SEC this week.

Digital asset markets rallied in response to the news.

So, let’s pick up where I left off in Thursday’s edition of the newsletter and further unpack the implications of Ripple’s win.

Ripple’s Victory over the SEC

On Thursday, U.S. District Judge Analisa Torres ruled that “Ripple Labs Inc did not violate federal securities law by selling its XRP token on public exchanges,” according Reuters, which also referred to the win as “a landmark legal victory for the cryptocurrency industry”.

I agree with Reuters, and it felt good to have the likes of Congressman Ritchie Torres celebrate with us.

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Before I get into why this win was important, it’s also important to acknowledge that the SEC also won a partial victory in the case, as well. And you might be surprised to hear that I think this is actually a good thing.

In the case, Judge Torres also ruled that “Ripple violated federal securities law by selling XRP directly to sophisticated investors.”

That is, when Ripple sold XRP to private investors before allowing the token to be sold publicly, it violated securities law.

So, the legal precedent set here is that a digital asset like XRP is a security when it’s sold to private investors by a company that develops and issues it, but it isn’t a security when it’s sold on a secondary market (i.e., a crypto exchange).

There are two major benefits to this:

1. It will now be much harder for crypto companies to sell tokens to VCs privately at prices much lower than those at which the public buys them on crypto exchanges.

2. Crypto exchanges, which serve as secondary markets for these assets, now have in their corner a major legal precedent that helps them to make the argument that they aren’t “unregistered securities brokers”, as the SEC claims they are.

This second point is particularly important for people like myself who live in jurisdictions like New York State that are extremely unfriendly to Bitcoin/crypto.

For more on that how stifling NY regulation is for Bitcoin/crypto, check out a piece I wrote for ValueWalk on behalf of Finder that was published on Friday: “New York Continues to Snub Crypto”

Here’s an excerpt from it:

“Even Popular Bitcoin-Focused Platforms Can’t Serve New Yorkers

It seems difficult to believe that the Strike app, a payments app that harnesses the power of the Lightning Network (a layer-2 scaling solution for Bitcoin) and that allows you to buy and sell Bitcoin, now serves 3 billion users in 65 countries but not New York residents — thanks to the BitLicense.

This is particularly frustrating given that residents of 48 other US states are permitted to use Strike.

The same is true for the popular Bitcoin-only exchange Swan Bitcoin, a go-to exchange for many hardcore Bitcoiners.

And while you can earn Bitcoin rewards with the Fold App, you still can’t use the app to purchase Bitcoin if you’re a resident of the Empire State.”

For even more on the topic, see this piece I wrote for NASDAQ on behalf of Finder: “New York Defends Old Money While Crypto Industry Spends Its Golden Years In Brighter Jurisdictions”

Here’s my favorite paragraph from the piece:

“As a New York State resident, when you try to open an account with some crypto exchanges, you receive a message explaining how the exchange doesn’t service jurisdictions including New York State, Iran, Syria, and North Korea. Really great to see New York in the company of such progressive places.”

We have very few options for buying bitcoin and other crypto assets in New York, and I’m in favor of any ruling that continues to give us as many options as possible to do so.

Thursday’s ruling was a massive win for crypto exchanges, because there is now legal precedent that stipulates that crypto exchanges aren’t necessarily unregistered securities brokers.

This will be a boon for Coinbase, a major crypto exchange currently fighting a lawsuit brought on by the SEC and one of the few crypto exchanges that serves New Yorkers.

Why Coinbase Is Important

Before getting into why I back Coinbase, I’ll first acknowledge that I understand and appreciate the points that a lot of hardcore Bitcoiners make about why Coinbase and its CEO Brian Armstrong haven’t been great for Bitcoin in some regards.

If you’d like to learn what those points are, check out these links: “Coinbase Leads Users Astray by Recommending Everything Besides Bitcoin” (Bitcoin Magazine) and an archive of deleted Brian Armstrong tweets.

While I philosophically agree with a lot of the points made in the sources above, its still important to me that Coinbase continues to exist in New York and in other jurisdictions in which residents may have few choices for buying bitcoin.

Also, Coinbase has helped onboard more people to Bitcoin than just about any of the aforementioned Bitcoiners who critique it, so I still see Coinbase as a net positive for Bitcoin.

I also think it’s a good thing that Coinbase is a publicly traded company and has to disclose its financials. And I enjoyed combing through them to write the following report: “Coinbase statistics 2023” (Finder)

Anyway, the SEC’s case against Coinbase is also being argued in the Southern District of New York (like the Ripple case).

Judges in the Southern District tend to discuss related cases with one another based on what I’ve heard from some lawyers in the crypto industry.

Here’s a tweet thread from one of those lawyers:

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(MetaLawMan (real name: James Murphy) also had a great piece published in American Banker this week: “Gensler’s Crypto Onslaught Will Eventually Be Halted by the Courts”)

Finally, even JP Morgan sees the Ripple case ruling as a big win for Coinbase.

So, in the wake of this good news for Coinbase, let’s take a look at whether or not Coinbase is a good company in which to invest both generally speaking and at the present moment…