In December 2020, the U.S. Securities and Exchange Commission (SEC) filed a lawsuit against Ripple Labs, the company behind the XRP token (XRP-USD), alleging that Ripple and its current and former chief executives had been conducting a $1.3 billion, unregistered securities offering by selling XRP, which Ripple’s founders created in 2012.
Ripple Labs is a registered American company, meaning that the SEC is able to pursue legal action against them, unlike bitcoin (BTC-USD), where the creator is unknown, or other big cryptocurrencies that are registered outside the U.S.
In fact, one of Ripple’s biggest arguments is that Ethereum (ETH-USD), for example, the second-largest cryptocurrency, is no different from XRP regarding unregistered securities, so the question of why the SEC gives them a pass arises. For the moment, this issue is being avoided by SEC chairman Garry Gensler. Ripple is also arguing that the SEC has no jurisdiction over XRP tokens as many of them have been bought and sold through exchanges outside of the U.S.
The SEC, however, is arguing that Ripple has sold its XRP token in exchange for “money,” which meets the “Investment of Money” aspect of the Howey test. This test determines whether or not an asset can be defined as a security. More so, the SEC is also arguing that Ripple executives knew that XRP sales and trading did not meet the principles of the Howey Test.
XRP is one of the few mega cryptocurrencies which failed to achieve a new all-time high during the 2020-2021 bull market. The lawsuit crashed the price of XRP while making the cryptocurrency holders the biggest victims in the story, meaning that the SEC has actually hurt the people that they were supposed to protect, the investors.
Since the lawsuit started, XRP has been delisted from Coinbase (NASDAQ: COIN) and other U.S. exchanges. Nevertheless, Ripple has continued to focus its efforts in Asia and the Middle East while landing big contracts and collaborations with more than 100 financial institutions, banks, and other businesses worldwide.
Ripple’s Latest Developments
Almost two years have passed since the lawsuit, and during this time, both parties have continued to argue their claims in front of judge Analisa Torres of the U.S. District Court for the Southern District of New York. Despite the long ongoing legal process, no significant breakthrough has been seen until this week.
On September 19, 2022, it was published that both parties had filed separate motions, both calling out for a summary judgment. A summary judgment is a legal term that means that a party involved in the matter believes they have enough evidence at hand to try and reach a conclusion without the need to proceed to a trial.
In a Twitter (NYSE: TWTR) post last Saturday, Ripple CEO Brad Garlinghouse said, “Today’s filings make it clear the SEC isn’t interested in applying the law. They want to remake it all in an impermissible effort to expand their jurisdiction far beyond the authority granted to them by Congress.”
Stuart Alderoty, Ripple’s general counsel, added, “My hot take – after two years of litigation, the SEC is unable to identify any contract for investment (that’s what the statute requires); and cannot satisfy a single prong of the Supreme Court’s Howey test. Everything else is just noise.”
It’s Bigger Than Ripple
The lawsuit results will have a profound impact on the entire crypto space, as it will set the tone for all the regulations to come into the U.S. and the rest of the world. These regulations will determine whether a cryptocurrency is a security or not and which jurisdiction it will come under – the SEC or a different authority.
XRP is Recovering Nicely
Just like the broader crypto market, XRP went down rapidly since the beginning of the year. At writing, XRP is down over 85% from its all-time high set in January 2018 and down 52% in the last year. However, as the news broke out regarding the upcoming court ruling, XRP started to decouple from the market and climb higher.
In addition to this, as reported by U.Today, a transfer of 30 million XRP was reported by WhaleAlert, while another 261 million XRP coins were moved by whales between wallets on various top exchanges in the previous day.
At writing, XRP is trading at around $0.48, up 47% in the last seven days.
Buyers came in strong, and broke through the previously-mentioned resistance levels (areas on a chart where the sellers are stronger) from this week’s “Cryptocurrencies to Watch” article. For the first time in almost five months, XRP broke through the $0.40 level. It also passed the $0.45 resistance and is now making its way to the next resistance area at around $0.50.
Conclusion: The Judge Will Call the Shots for Ripple
Ripple Labs is a strong company with a great product and a very experienced team. However, no one knows what Judge Analisa Torre’s decision will be.
In my opinion, there are three possible scenarios :
- Bullish scenario: Ripple wins the case against the SEC, and the token gets relisted on American exchanges. – In this case, XRP should continue higher.
- Neutral scenario: Ripple loses the case in the U.S. but can continue its work worldwide – In this case, XRP should move in correlation with the broader crypto market.
- Bearish scenario: Ripple loses the case, and the token gets banned worldwide – In this case, Ripple will need to find a different business model, and the price of XRP can crash to the lows of around $0.15.
It will be interesting to see what happens with the lawsuit, moving forward.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
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