To close out 2024, Ripple Chief Legal Officer (CLO) Stuart Alderoty has shared crucial regulatory principles regarding the regulation of cryptocurrencies in the U.S. Alderoty expects the U.S. Securities and Exchange Commission (SEC) to follow these principles, and has expressed hope that he will not need to repeat them in the future.
Principles For Cryptocurrency Regulation
Alderoty’s message is based on the fundamental distinction between security transactions and basic asset sales. He emphasized that the SEC’s regulatory authority extends exclusively to security transactions, while straightforward asset sales fall outside its jurisdiction.
To illustrate this crucial difference, he presented an analogy involving gold transactions: When a gold bar sale includes contractual rights or interests in a mining operation, it constitutes a security transaction subject to SEC oversight.
However, a gold bar sold without accompanying rights or obligations represents a simple asset sale, which falls beyond the SEC’s regulatory scope.
Alderoty also challenged the SEC’s tendency to expand its regulatory reach based on what he terms a self-serving interpretation of disclosure requirements. This criticism reflects broader industry concerns about the SEC’s attempts to classify various cryptocurrency assets as securities.
Furthermore, Alderoty addressed a controversial theory circulating within regulatory circles regarding the nature of cryptocurrency tokens. He rejected the concept that tokens can transition from securities to non-securities, characterizing this notion as lacking any legitimate legal foundation.
The SEC has spent years in U.S. courts trying to label cryptocurrencies as securities. In Alderoty’s view, while tokens can be involved in security transactions, they cannot be inherently classified as securities.
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A New Phase In U.S. Crypto Regulation
The timing of these statements is particularly relevant as the SEC prepares for a leadership transition. Current Chair Gary Gensler’s tenure, marked by an aggressive “regulation by enforcement” strategy, will end in the coming days.
Paul Atkins, Trump’s nominee for the position, is expected to implement a more accommodating regulatory approach. However, recent reporting from the New York Post suggests that the cryptocurrency industry should not expect complete regulatory leniency in the coming year.
In a forward-looking statement last month, Alderoty proposed recommendations for the incoming SEC leadership. He advocated for the discontinuation of non-fraud cryptocurrency cases and emphasized the importance of collaborative efforts between the SEC and Congress to establish clear, comprehensive cryptocurrency regulations.
The SEC’s next steps under the new administration will greatly influence the crypto market’s direction. With major regulatory changes expected in 2025, market participants are hopeful the regulator will follow the path suggested by Alderoty and help the market grow to new heights.
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