Hinman Documents From Ripple-SEC Case to Trigger More Decentralization in Crypto: JPM

Analysts at American multinational financial services giant JPMorgan said in a report that the Hinman documents released last week in the Securities and Exchange Commission’s legal tussle with the blockchain payments firm Ripple would likely trigger more decentralization in the crypto realm.
The research report, seen by CoinDesk, further noted that the documents provide a significant advantage for ether (ETH), the second largest crypto asset by market cap.
A Boost for Ether
The Hinman documents are internal messages and emails related to former Director of Corporation Finance William Hinman’s 2018 speech on ETH being akin to a commodity. Hinman said then ETH did not look like a security even though it may have started as one. He explained that such assets could become commodities once sufficiently decentralized.
On June 13, Ripple used statements in the documents to defend the SEC’s allegations in the ongoing lawsuit. Since December 2020, the U.S. regulator has insisted that the sale of XRP – the network’s native token – was an unregistered securities offering, as it met the criteria required to pass the Howey test.
Over time, Ripple has stood its ground on XRP not being a security. The firm asserted that the token was sold in the same manner as ETH when founded and, thus, should be recognized as a commodity too. Both parties have submitted several motions, making it difficult for the court to pass a verdict.
The JPMorgan analysts, led by Nikolas Panigirtzoglou, said SEC officials have admitted that the presence of tokens on a “sufficiently decentralized network,” which cannot be classified as securities, creates a regulatory gap.
According to the report, the Hinman speech recognizes another category of assets that are not securities “because there is no controlling group (at least in the Howey sense).” The analysts believe that a need for regulation to protect investors may arise.
The financial services company suggested that the SEC’s discoveries could be why the agency has not taken any enforcement action against ETH despite the intense scrutiny of other tokens this year.
Triggering More Decentralization
Furthermore, the report noted that the revelations made in the documents could drive other cryptocurrencies to look like ETH and become more decentralized, as more decentralization would reduce a digital asset’s chance of being recognized as a security.
“The Hinman documents are likely to influence the direction of the current U.S. congressional effort to regulate the crypto industry in a way that ether would avoid being designated as a security,” the analysts wrote.
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