Proof of State is the Wednesday edition of Fortune Crypto where Leo Schwartz delivers insider insights on policy and regulation.
Hope springs eternal. Last week’s Ripple decision was the first positive signal in crypto since Elon Musk briefly turned the Twitter logo into a Doge (or maybe when a slew of TradFi firms filed for Bitcoin ETFs), driving up the price of altcoins and sending Crypto Twitter aflutter with the promise of a bull run.
Part of the glee, of course, stemmed from the apparent loser on the other side of the court case: Crypto’s favorite boogeyman, SEC Chair Gary Gensler. After issuing an obstinate statement last week where the SEC declared victory, Gensler admitted that he was “disappointed” with the judge’s ruling, which found that XRP wasn’t a security when sold to retail investors on exchanges, at an event on Monday.
After months of morose predictions that crypto regulation faced an impossible hurdle in Congress, some began to express optimism that the tide had turned. Democrats had relied on Gensler’s approach to taming the industry, but now his strategy of enforcement actions seemed legally dubious. On a podcast yesterday, the Blockchain Association’s chief policy officer, Jake Chervinsky, said that the ruling “lights a fire” under U.S. lawmakers to act.
Rep. Glenn Thompson (R-Pa.), the chair of the House Agriculture Committee, told Bloomberg that he hopes the ruling will encourage Democrats to support his market structure bill, which he plans to introduce formally with House Financial Services Chair Patrick McHenry (R-N.C.) this week. Coinbase founder Brian Armstrong is even set to meet with House Democrats this morning from the center-left New Democrat Coalition—a signal that the party may be thawing to the idea of legislation.
One key House Democrat was not so bullish. Ritchie Torres, the second-term congressman from New York on the House Financial Services Committee, has bucked from many of his party colleagues on the topic of crypto, supporting the call for comprehensive legislation and criticizing Gensler, a Biden appointee, in a series of open letters. He dubbed the Ripple ruling’s approach to tokens as the “Torres Doctrine” (named after the judge, not himself, although he poked fun at the coincidence), lauding it as “long overdue legal clarity.”
When I reached him by text yesterday, Torres reiterated that the decision contradicts Gensler’s long-stated theory that no new legislation is needed to regulate the crypto industry. “Gensler has egg on his face,” he said.
Whether it will change the calculus in Congress is another matter. Torres said the ruling is legally game-changing, but he sees no evidence yet that it will have any impact on legislative decisions.
“It is not clear to me that the legal implications of the SDNY decision are widely understood,” he told me. “It should have an impact, but I’m not convinced it will.”
The House Financial Services Committee is set to mark up its cryptocurrency legislation next Wednesday, where it should become more clear whether Democrats’ positions have shifted.
Leo Schwartz
leo.schwartz@fortune.com
@leomschwartz
