• CFTC’s subcommittee recommends using DLT-based collateral in trading.
• Approval could broaden access to digital assets for smaller market participants.
• Strong ETF inflows signal growing institutional interest in digital assets.

In a significant development for the digital assets market, the US Commodity Futures Trading Commission (CFTC) is reportedly considering a proposal that would enable the use of digital ledger technology (DLT)-based collateral in commodities and derivatives trading.

According to Bloomberg, a subcommittee of the CFTC’s Global Markets Advisory Committee recently voted to recommend this proposal, which, if approved, could streamline transactions and promote broader adoption of digital assets in traditional finance.

A step toward mainstream adoption

If the proposal receives final approval from the main committee, it could lead to a paradigm shift in how trading collateral is managed.

The adoption of DLT-based collateral would allow traders to settle transactions using digital assets with the same speed and efficiency that digital ledger and blockchain technology offers.

This change would enable brokers to accept tokenized assets, such as BlackRock’s USD Institutional Digital Liquidity Fund (BUIDL) token, through market-embedded systems.

While the use of blockchain-based assets as collateral is already gaining traction among major financial institutions like BlackRock and JP Morgan, the CFTC’s potential approval would catalyze broader adoption across the industry.

As it stands, only large firms have been able to utilize these innovative financial instruments, but this move could open the doors for smaller market participants to access similar benefits.

Uncertainty ahead

Despite the positive momentum surrounding the proposal, several steps remain before it can be formally submitted for CFTC approval. The main committee must first review and endorse the subcommittee’s recommendation, and there are no guarantees that the CFTC will approve the proposal in its current form.

Regulatory concerns may arise regarding which institutions and blockchains are permitted to participate, which could introduce potential restrictions that may limit the scope of the initiative.

Furthermore, the broader context of digital assets in traditional finance cannot be ignored. Recent trends, such as strong inflows into spot Bitcoin exchange-traded funds (ETFs), indicate a growing acceptance and interest in digital assets among institutional investors.

For instance, BlackRock’s Bitcoin ETF has recently outperformed its peers, witnessing the highest daily inflow of any fund on September 25, marking a five-day streak of inflows across all spot Bitcoin ETFs in the United States.

This surge in interest may influence the CFTC’s decision-making process as they consider the implications of allowing digital assets as collateral.

As this unfolds, stakeholders will be watching closely as the regulatory landscape continues to evolve, potentially paving the way for a more integrated future for digital assets in commodities and derivatives trading.

XRP Lawsuit: Ripple’s Chief Legal Officer, Stuart Alderoty, has voiced his frustration with the U.S. Securities and Exchange Commission (SEC) following the agency’s recent notice of appeal.

Ripple is now contemplating filing a cross-appeal, potentially targeting both Judge Analisa Torres’ ruling on institutional sales or the $125 million penalty imposed in August.

XRP Lawsuit: Stuart Alderoty Slams US SEC

In a recent X post, Ripple CLO Stuart Alderoty addressed the SEC’s decision to appeal parts of the court’s ruling. In this case, the company has until October 18 to let the court know if it will appeal the decision, as per Fox Journalist, Eleanor Terret. According to her, the aspects of Ripple’s appeal could be based on Judge Torres’ findings that the XRP sales to institutional investors were unlawful under securities laws and the $125 million fine.

If Gensler and the SEC were rational, they would have moved on from this case long ago. It certainly hasn’t protected investors and instead has damaged the credibility and reputation of the SEC.

Somehow, they still haven’t gotten the message: they lost on everything that… https://t.co/1hW7xVSL9b

— Brad Garlinghouse (@bgarlinghouse) October 2, 2024

The cross-appeal would be wrapped into the same case now heading to the U.S. Court of Appeals for the Second Circuit.

Alderoty stated that he was dissatisfied with the decision of the SEC to pursue the litigation, adding that the complaint was a complete embarrassment to the commission. He noted that the court dismissed allegations of negligence on the part of Ripple, as well as lack of fraud and harmed investors. As much as the US SEC has been adamant, Stuart Alderoty was insistent that Ripple would continue its defense and more so for the rest of the cryptocurrency companies.

Agency’s Appeal and Brad Garlinghouse Response

The SEC filing of its notice of appeal in the XRP Lawsuit is just days before the October 7 deadline, signaling its intent to challenge Judge Torres’ ruling from July 2023. In that ruling, the court found that while XRP’s programmatic sales through exchanges were not securities transactions, sales to institutional investors did violate securities laws. The reason to appeal to the Securities and Exchange Commission can therefore be either or both of these points though more details have not been confirmed yet.

In his response to the decision, Ripple CEO Brad Garlinghouse also stated that the SEC has continued to squander taxpayers’ funds on what they described as a “losing fight.” Garlinghouse further noted that the SEC had not served the interest of investors but instead harmed itself by stating “I’m not surprised. I’m pissed.” He also pointed out that XRP’s status as a non-security for programmatic sales remains unchanged despite the Securities and Exchange Commission’s appeal.

Alderoty also noted the timing of Gurbir Grewal’s resignation, the SEC’s Director of the Division of Enforcement, who stepped down one hour before the SEC filed its appeal on the XRP Lawsuit. Grewal’s departure has raised more questions on the future of the Securities and Exchange Commission and its leadership since Chair Gary Gensler has been under fire over the handling of cryptocurrency and enforcement.

Both Ripple CLO Stuart Alderoty, Brad Garlinghouse  and the rest of leadership, have constantly lambasted the Securities and Exchange Commission for its handling of the case, accusing the agency of being in bad faith. This comes as Grewal departs from the agency, leaving room for speculations whether or not there will be changes to the US SEC’s approach to enforcing laws in the crypto space.

XRP Price Tanks Over 10% Post Appeal

After the US SEC notice of appeal on the XRP lawsuit, the token’s price has decreased significantly. At press time, XRP price was trading at $0.5331, an 11% decline from the 24 hour high.

Despite this dip,  cryptocurrency commentator CredibleCrypto highlighted Bitwise’s recent filing for an XRP exchange-traded fund (ETF), signaling growing interest in the asset.

Yes, I’m aware of the SEC appeal on the @Ripple case, but at the same time in the last 12 hours (seemingly unbeknownst to a lot of crypto twitter) @BitwiseInvest just filed for an $XRP ETF.

XRP will be the next approved ETF after $BTC and $ETH imo.

As far as narratives go, I… https://t.co/CBwx6IT9nc

— CrediBULL Crypto (@CredibleCrypto) October 2, 2024

The analyst as a result suggested that XRP could be the next cryptocurrency after Bitcoin and Ethereum to receive ETF approval, despite the ongoing legal case. The appeal, according to CredibleCrypto, is unlikely to affect XRP’s market trajectory in the long term.

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Kelvin Munene Murithi

Kelvin is a distinguished writer with expertise in crypto and finance, holding a Bachelor’s degree in Actuarial Science. Known for his incisive analysis and insightful content, he possesses a strong command of English and excels in conducting thorough research and delivering timely cryptocurrency market updates.

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