Ripple Lawsuit Reveals Hinman Documents, JPMorgan Analysis Suggests ETH Will Be Classified in New Category

According to speculation by JPMorgan strategists, the U.S. Congress may consider categorizing Ethereum under a new "other category" to avoid classifying it as a security, while protecting investors. This report comes after the U.S. Securities and Exchange Commission (SEC) released the "Hinman document" in the enforcement lawsuit against Ripple Labs.

Latest Development in Ripple Lawsuit – Public Release of "Hinman Document"

In the recent development of the lawsuit against Ripple, the early payment network company that was sued by the SEC at the end of 2020, there is finally progress in the case! The SEC accused Ripple of raising over $1.3 billion through unregistered digital asset securities offerings starting from 2013. The SEC believed that Ripple's digital asset XRP was a security and should comply with relevant securities laws. Ripple, on the other hand, denied that XRP was a security and argued that the SEC's lawsuit was a crackdown on the cryptocurrency industry.

This lawsuit has been ongoing for years, and a previous court ruling required the SEC to disclose former official William Hinman's speech document as evidence, which is known as the "Hinman Document." The key evidence has now been unsealed. The Hinman Document refers to a speech given by former SEC official William Hinman in 2018, where he stated that ETH should not be considered a security because Ethereum is a "sufficiently decentralized" blockchain network.

According to the released document, some SEC officials expressed concerns about the mention of ETH in the speech. One comment stated:

In fact, tokens on a network that is sufficiently decentralized are not securities, leading to a regulatory gap.

Neither Securities Nor Commodities

According to a report by The Block, a report issued by JPMorgan strategist Nikolaos Panigirtzoglou and others suggests that the U.S. Congress could categorize ETH and BTC under the same commodity category or create a new "other category" with regulatory requirements less stringent than securities but stricter than commodities, involving more investor protection measures.

The report states:

There could be an introduction of a new "other" category specifically for Ethereum and other sufficiently decentralized cryptocurrencies to avoid them being categorized as securities. This "other category" would have more regulatory requirements than commodities but less onerous than securities.

JPMorgan's comments were made following the public release of the Hinman Document. The report mentioned:

There could be an "other" category. It is not a security because there is no "controlling group," at least not from the Howey test perspective, but it might need regulation to protect buyers.

This may also explain why the SEC has taken a cautious approach towards Ether in recent enforcement actions.

JPMorgan also pointed out that the "Hinman Document" could likely influence the current direction of U.S. congressional regulation of the crypto industry, allowing ETH to avoid being classified as a security. These documents could benefit ETH by increasing the case for avoiding classification as a security, but the impact on Ripple is uncertain.

The U.S. House Financial Services Committee recently released a draft of the "Digital Asset Market Structure Discussion Act," which discusses one of the hottest topics in the crypto industry – whether digital assets are commodities or securities. The draft provides a framework that allows digital assets that were previously considered securities to be classified as commodities if they can prove their blockchain has sufficient decentralization.

Hearings on this matter are ongoing. The crypto community is hopeful for clear regulations to emerge soon, so that compliant crypto businesses can have a legal framework to follow, rather than worrying about regulatory uncertainties all the time.