JPM: Hinman documents Ripple-SEC case to trigger more decentralization of cryptocurrencies

JPMorgan analysts believe the disclosures in the filing could prompt other cryptocurrencies to look like ETH and become more decentralized.

Analysts at U.S. multinational financial services giant JPMorgan said in a note that the Hinman document released last week in the SEC's legal dispute with blockchain payments company Ripple could trigger more decentralization in the crypto space.

The research note, seen by CoinDesk, further noted that the documents offer significant advantages to ether (ETH), the second-largest crypto asset by market capitalization.

ETH BOOST

The Hinman documents are internal messages and emails related to a 2018 speech by former corporate finance director William Hinman about ETH being a commodity. Hinman said ETH did not look like a security at the time, although it may have been a security to begin with. Once sufficiently decentralized, these assets could become commodities, he explained.

On June 13, Ripple used the statements in the filing to defend itself against the SEC's allegations in an ongoing lawsuit. Since December 2020, U.S. regulators have insisted that the sale of XRP, the network’s native token, was an unregistered offering of securities because it met the criteria needed to pass the Howey test.

Over time, Ripple has insisted that XRP is not a security. The company asserted that the token was sold in the same way as ETH at its inception and should therefore also be considered a commodity. Both sides filed multiple motions, making it difficult for the court to reach a verdict.

JPMorgan analysts led by Nikolas Panigirtzoglou said SEC officials have acknowledged that the presence of tokens that cannot be classified as securities in a “sufficiently decentralized network” creates a regulatory gap.

According to the report, Hinman’s speech recognized another class of assets that are not securities, “because there is no holding group (at least in the sense of Howey).” Analysts believe that regulatory needs to protect investors may arise.

The financial services firm said the SEC’s findings may be the reason why the agency has yet to take any enforcement action against ETH despite intense scrutiny of other tokens this year.

Trigger more decentralization

Additionally, the report noted that the disclosures in the filing could prompt other cryptocurrencies to look like ETH and become more decentralized, as more decentralization would lower the digital asset’s chances of being recognized as a security.

“The Hinman document could influence the direction of the current U.S. Congress’ regulation of the cryptocurrency industry in a way that avoids the designation of ether as a security,” the analysts wrote.