SEC Chair Gary Gensler Faces Lawmaker Scrutiny as Ripple Case Drags On

Key Insights:

• The House of Representatives Committee on Finance Services raises concerns over SEC rule changes.
• A letter to Gary Gensler and the SEC highlights SEC attempts to change SEC laws to capture digital assets.
• Key technical indicators bullish. XRP sits above the 200-day EMA.

Last week, the SEC was left with little choice but to request yet another extension in its case against Ripple.

Over the weekend, we reported on the SEC’s request for an extension of time to file its objection to Magistrate Judge Netburn’s ruling on the Motion for Reconsideration of the DPP Ruling.

By contrast, the SEC noted that the defendants are ready to proceed to summary judgment without a ruling on the now highly publicized Hinman emails and documents.

The latest extension and the SEC’s inability to close out the case against Ripple Lab raise several material questions.

The big question remains, however, whether XRP is a security or not a security.

As the case progresses through its twist and turns, Gary Gensler and the SEC may be losing credibility.

U.S Lawmakers Question Gensler and the SEC on Digital Assets

On Monday, defense lawyer James Filan shared a letter addressed to Gary Gensler. Filan has been actively sharing updates on the ongoing SEC v Ripple case. Monday’s House of Representatives Committee on Financial Services letter did not reference the Ripple case directly.

#XRPCommunity #XRP @FinancialCmte @RonwHammond Financial Services Committee GOP raises concerns regarding recent SEC rulemakings on digital assets. See letter below. https://t.co/AaV0qmhQY0

— James K. Filan 🇺🇸🇮🇪90k+ (beware of imposters) (@FilanLaw) April 18, 2022

The letter did raise concerns over recent SEC law change proposals and the impact of such rule changes on digital assets.

Lawmakers cited two rule changes.

First Rule Change Looks to Broaden the Definition of an Exchange

According to the letter, dated January 2022, the SEC proposed to expand the definition of an exchange. The Securities Exchange Act of 1934 defines an exchange to include,

“Any organization, association, or group of persons, whether incorporated or unincorporated, which constitutes, maintains, or provides a market place or facilities for bringing together purchasers and sellers of securities or for otherwise performing with respect to securities the functions commonly performed by a stock exchange as that term is generally understood, and includes the market place and the market facilities maintained by such exchange.”

The letter goes on to discuss rule clarifications from 1998 and the SEC adoption of Rule 3b-16 to clarify the definition of “exchange” under the Exchange Act. Rule 3b-16 defines an exchange as,

“Any organization, association, or group of persons that (1) brings together the orders for securities of multiple buyers and sellers; and (2) uses established, non-discretionary methods (whether by providing a trading facility or by setting rules) under which such orders interact with each other, and the buyers and sellers entering such orders agree to the terms of a trade.”

Lawmakers highlight that such a rule change would expand the definition of an exchange to include “Communications Protocol Systems,” a step that lawmakers view as beyond the SEC’s statutory authority.

The letter notes that the SEC intends to take an expansive view in defining a “Communication Protocol System.” Such an outcome would create market uncertainty and likely stifle innovation.

While the first rule change aims at crypto exchanges, a second rule change is even more alarming for the digital asset space.

The Second Rule Aims to Pool Digital Assets under the SEC

In March 2022, the SEC proposed to further define the term “as part of a regular business” for purposes of registering under Sections 15 and 15C.

The letter states that,

“Section 3(a)(5) of the Exchange Act defines the term “dealer” as any person that is “engaged in the business of buying and selling securities… for (its) own account,” unless it is not doing so as “part of a regular business.”

The letter adds that under the proposed rule,

“The buying and selling of securities, for one’s own account will be deemed “a part of a regular business” if such person “engages in a routine pattern of buying and selling securities (or government securities) that has the effect of providing liquidity to market participants,” thus requiring registration with the SEC.”

Materially, lawmakers state that,

“Most concerning, the SEC indicates in a footnote, but nowhere else in the rule, that the proposed rule would also encompass digital assets deemed to be securities without any additional information or related cost-benefit analysis.”

In consideration of the SEC case against Ripple Lab, the second rule change may add further confusion.

From a legal perspective, the classification of a digital asset may become a moot point under the second rule. Questions may also arise over the timing of the proposed rule changes and the latest SEC extension.

XRP Price Action

At the time of writing, XRP was down 0.27% to $0.7672. A mixed morning session saw XRP rise to an early morning high of $0.7763 before falling to a low of $0.7589.

On Monday, XRP rose by 2.27% to partially reverse a 3.68% slide from Sunday. Positive updates from the SEC case have provided little support. On Saturday, XRP failed to break resistance at $0.80, hitting a weekend high of $0.7994 before the latest retreat.

Technical Indicators

XRP will need to avoid the $0.7555 pivot to move through the First Major Resistance Level at $0.7832 and test resistance at $0.79. XRP would need broader crypto market support the return to $0.78 levels.

In the event of an extended rally, XRP should test the Second Major Resistance Level at $0.7970. The Third Major Resistance Level sits at $0.8385.

A fall through the pivot would bring the First Major Support Level at $0.7416 into play.

Barring an extended sell-off throughout the day, XRP should avoid sub-$0.72. The Second Major Support Level sits at $0.7140.

The EMAs and the 4-hourly candlestick chart (below) send a bearish signal. XRP sits below the 100-day EMA at $0.7692. This morning, the 50-day EMA narrowed to the 100-day EMA. The 100-day EMA held steady on the 200-day EMA, providing support.

A further narrowing of the 50-day EMA on the 100-day EMA would bring resistance levels into play.