Ripple Scores a Win as Hinman Documents Set to be Unveiled – How has XRP Responded?

Ripple is enjoying a win this week as a motion from the US Securities and Exchange Commission (SEC) to seal records of its internal deliberations following a speech by former director William Hinman has been denied.

Back in Jan. 2022, Sarah Netburn, a magistrate judge in the same court, also ruled that the documents must be turned over to the company as part of the ongoing discovery process.

It was in June 2018 that the former US securities regulator Hinman stated that Ethereum's native token Ether (ETH), is not a security. Ripple has considered that speech to be an integral part of the evidence in its legal battle with the SEC, which claims that by selling XRP tokens, Ripple has violated US securities laws.

The SEC filed the motion late last year in December to seal the records, including text messages, internal emails, and expert reports that followed Hinman's speech. The regulator argued that its purpose is far more important than the “public's right” to access documents, which it says has “no relevance” to the court's decision.

But on Tuesday, Judge Analisa Torres for the US District Court for the Southern District of New York ruled that the documents are “judicial documents” subject to a strong presumption of public access. The Hinman Speech Documents “would reasonably have the tendency to influence ruling on a motion,” she added.

The court ruled that the documents “are not protected by the deliberative process privilege because they do not relate to an agency position, decision, or policy.” Moreover, the court rejected the commission's argument that sealing the documents is necessary to preserve “openness and candor” within the SEC.

While the Hinman Speech documents will be made public, the court permitted SEC to redact the names and identifying information of SEC experts and XRP investor declarants, along with the defendant's personal and financial information.

At the same time, the court denied certain motions to seal from Ripple, including any references to Ripple's revenues with XRP sales, the amount of XRP sales targeted at investors through programmatic and institutional sales, the amount of compensation offered to trading platforms, and other types of information.

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The United States is “Stuck”

With the court ruling that the emails of former SEC official William Hinman will soon be publicly available, Ripple CEO Brad Garlinghouse announced this another win for transparency.

“Stay tuned as the lawyers work through the mechanics to make that happen,” Garlinghouse commented.

Amidst all this, Garlinghouse also tore into the SEC this week, saying: “I find it as a company that started in the United States and as somebody who is a US citizen, it's sad. I have sadness about this. The US is getting passed not just by a little bit but by a lot.”

Garlinghouse then went on to say: “The tough thing about this is you have a country that I think has put politics ahead of policy, and that's not a good decision if you're trying to invest in the economy.”

He stated that by the time the lawsuit is over, the company will have spent $200 million defending itself. Ripple has actually announced an expansion into Dubai. According to Ripple CEO, Dubai, and Europe have proven to be much more favorable markets with their virtual asset regulatory frameworks, adding: “The United States is definitely stuck.”

Besides Garlinghouse, Brian Armstrong, the CEO of the largest cryptocurrency exchange in the US, Coinbase, recently also shared plans to leave the US.

The regulator has taken strong enforcement actions against companies including Kraken, Coinbase, and Paxos, accusing each of defying securities laws. According to the SEC, most crypto assets may qualify as securities, meaning they should be subject to stricter registration and disclosure requirements.

Ripple's Demise a Notch on SEC's Belt

In a recent critique of the SEC, John Deaton, the legal representative of XRP holders, voiced his concerns about the regulator's functionality and integrity. Deaton took to Twitter to state that he believes the agency is indefensible as an institution. He further stated that the SEC is a broken agency that no longer upholds its core mission.

In his tweets, Deaton lamented the SEC's reliance on cases from decades ago which he believes fails to provide adequate guidance and clarity to the nascent and rapidly growing crypto market.

Deaton further referred to events that should have influenced the SEC's perspective on crypto. This includes Hinman's public speech, which outlined the SEC's stance on cryptocurrencies, and the framework for “investment contracts,” issued by the regulator in 2019 that states a virtual currency used for a fiat substitute and payments were unlikely to be classified as a security under the Howey test.

Deaton further emphasized that XRP has already been recognized as a virtual currency by multiple governmental bodies. Moreover, former SEC chairman Jay Clayton has previously agreed with Hinman's point of view, which raises doubts about the regulator's recent actions regarding XRP, stated Deaton.

Michael Arrington, the founder of TechCrunch and venture capital firm CrunchFund, recently also came in Ripple's defense, saying the SEC disapproves of Ripple's democratization of XRP trading.

He further proposed that the agency's legal actions against Ripple were motivated by a desire to have “Ripple's demise as a notch on their belt.”

While the entrepreneur said he doesn't know what will happen to XRP, what is or isn't a security, he said, is “totally irrelevant.”

Arrington further criticized the SEC's stance, arguing that its presumption that lower-income individuals are unable to make the same decisions as their wealthier counterparts is fundamentally unjust.

XRP Price Reacts Positively

This legal win for Ripple has buoyed investor confidence, and with that, the price of XRP spiked 9.5% to $0.46 before giving up some of these gains. At the time of writing, the $23 billion market cap cryptocurrency is exchanging at $0.444 while managing $1.6 bln in 24-hour trading volume, according to CoinGecko.

The coin is up 4.3% in the past week but down 87% from its all-time high (ATH) of $3.40 hit over five years ago in Jan. 2018. However, the 6th largest cryptocurrency is still up 30.5% in 2023 so far.

Despite the gloomy market sentiments, the XRP ledger network has witnessed a considerable increase in network traction. The seven-day average of Daily Active Addresses on the XRP network has been on the rise since the beginning of this month to, reach 74,393 active users.

XRP's gains came while Bitcoin price fell under $27k on Wednesday while ETH remained at $1,800. Meanwhile, US equity futures gained as US President Joe Biden and Congress hashed out an agreement allowing a rise in the debt ceiling.

Earlier this month, US Treasury Secretary Janet Yellen warned Congress that the country would start to fail to meet debt payment obligations by June 1, resulting in a debt default and wider economic repercussions not only in the US but also globally. On Tuesday, she warned again that a debt default would result in an income shock that could lead to a recession that would destroy the country's jobs and businesses.

This Friday, Federal Reserve Chair Jerome Powell will share his views on interest rate hikes ahead of the central bank's next decision on June 14. The current interest rate, between 5 and 5.25%, is the highest since 2006.

Amidst all this, Ripple CTO David Schwartz spoke about the ongoing debate surrounding the burning of XRP tokens saying that the XRPL's design does not include a built-in mechanism for burning XRP. Such a move would require agreement from the majority of validators, around 80%.

Schwartz further clarified that while validators play a key role in the network's consensus process, the nodes can accept or decline any amendments that are voted into effect by validators. This system allows for a more decentralized decision-making process instead of validators having all the power regarding what to be done with all the XRP held in escrow.

Consequences of Ripple-SEC Lawsuit

XRP is the native cryptocurrency of XRP Ledger, an open-source, public blockchain designed to facilitate faster and cheaper payments. It was launched in 2012 with a max cap of 100 billion pre-mined XRP tokens.

Eighty billion of these tokens were given to Ripple Labs to fund future operations and development, while the remaining XRP were divided by founders among themselves.

In 2017, 55 billion of its 80 billion XRP tokens were transferred into an escrow account from which it could sell a maximum of 1 billion tokens per month on the secondary market. As of May 2023, 42.3 billion XRP tokens are in escrow account.

Now, the SEC's assertion that Ripple carried out an unregistered securities sale is making XRP's future uncertain. It was two and a half years ago that the agency charged Ripple on the grounds that the company illegally raised $1.38 billion in unregistered securities offerings.

The lawsuit can result in Ripple lacking full access to its XRP reserves, which the company sells portions of periodically to fund its operations. As result of not having access to billions of XRP tokens, it could negatively impact Ripple's ability to continue operations as before the lawsuit.

This lawsuit has far-reaching implications for Ripple, XRP, and its numerous holders worldwide. Not to mention, Ripple is already experiencing difficulties attracting new customers in the US.

Also, numerous crypto exchanges have already delisted or suspended XRP trading, limiting liquidity for XRP holders. This has resulted in a substantial decline in XRP's price, as we have been witnessing the past few years, causing considerable losses for its holders.

While XRP's price has shown signs of recovery every now and then, the ongoing legal uncertainty casts a heavy shadow over its future. And the SEC's lawsuit is yet to conclude.

The cryptocurrency industry is also eagerly anticipating the result as the case's outcome could set a precedent for how other cryptos assets are regulated, impacting the industry's future and growth.

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