Editor’s note: Morning Money is a free version of POLITICO Pro Financial Services morning newsletter, which is delivered to our subscribers each morning at 5:15 a.m. The POLITICO Pro platform combines the news you need with tools you can use to take action on the day’s biggest stories. Act on the news with POLITICO Pro. Crypto has had a brutal year in Washington. The industry’s fortunes could reverse after federal Judge Analisa Torres ruled that a major crypto firm did not violate securities laws with certain sales and distributions of its native token. The SEC’s case against Ripple Labs has long been viewed as a bellwether for how much authority the agency will ultimately be able to exert when it comes to digital assets. While the SEC walked away with a partial victory — Ripple’s sales to institutional investors were deemed to have violated securities laws — Torres found other sales and distributions, including transactions made on crypto exchanges used by everyday investors, aren’t subject to the same rules. Translation: Wall Street and Silicon Valley are afforded all the investor protections that come with a registered investment product. Day traders are not. “It seems almost counterintuitive,” said Howard Fischer, a partner at the law firm Moses & Singer and a former senior trial counsel at the SEC. That tension has created one hell of an opening for crypto-friendly Republicans like House Financial Services Chair Patrick McHenry of North Carolina and Agriculture Chair G.T. Thompson of Pennsylvania, who’ve been trying to build bipartisan support for a crypto bill that would grant new powers to the Commodity Futures Trading Commission — the industry’s preferred regulator — and defang the SEC. The decision “recognizes what Republicans have said all along,” the two chairs said in a joint statement on Friday evening. “There is a limit to the SEC’s reach.” Democratic leaders like Rep. Maxine Waters of California, the ranking Democrat on Financial Services, as well as Sen. Elizabeth Warren of Massachusetts frequently echo SEC Chair Gary Gensler’s assertion that most crypto activity already falls under the agency’s purview. Few Democrats have strayed from that view — particularly since the stunning collapse of Sam Bankman-Fried’s FTX late last year. The Ripple ruling scrambles that argument. With McHenry having tentatively scheduled a markup on the crypto market structure bill for Wednesday (and Thompson saying he wants his committee to mark up the legislation before August recess), the Ripple ruling could create a lane for GOP leaders to peel off more Democrats to back the measure. Before Thursday’s ruling, “it wasn't resonating,” one senior Republican committee staffer involved in the drafting said late Friday. “Maybe when we start again next week — when they're back — it will resonate.” “Maybe the shoulders will come down and we'll be able to have a more fulsome conversation,” they added. Whatever case the Republicans can make to Democrats could hinge on whether the SEC appeals. Ty Gellasch, a former SEC official and Gensler ally who now leads the investor advocacy group Healthy Markets Association, has already warned that the decision could create leverage for “creative” securities lawyers with clients who are well outside the crypto sphere. An appeal, however, may not be a slam dunk. If the SEC does, the court could uphold Torres’s opinion — making it a precedent in a part of the country widely considered to be the agency’s home court and where it is currently battling Coinbase in litigation. But even if the SEC wins on appeal, Ripple could then ask the Supreme Court to take up the case — a potentially risky move, attorneys say, given justices’ recent proclivity for reining in administrative agencies. “Everything’s done in a political context," said one former Biden-era regulator. "The courts don’t exist in a vacuum. It almost makes me think that the judge said, ‘I’m going to apply the law as literally as I can, and if the consequences are vast and significant let Congress fix it.’” Still, perhaps the most likely outcome is the SEC pushing ahead with its enforcement blueprint, while pitching judges on the idea that the Ripple ruling is simply wrong. Plenty of others already are. “It’s incoherent on its face,” Tulane University law professor Ann Lipton said. “Any lawyer can look at this and say it doesn’t make sense. It doesn’t strike me as terribly long for this world.” IT’S MONDAY — And it’s very much earnings season. What should I be looking for as the quarterly reports from regional banks roll in? Send tips, gossip and suggestions to Sam at ssutton@politico.com and Zach at zwarmbrodt@politico.com
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