Cryptocurrency (Mar 09, 2021 08:30AM ET)
Ripple VS SEC
XRP made the news closing in 2020 for one of the worst possible reasons. The SEC filed a lawsuit against Rippled and released a statement claiming that Ripple Labs managers Brad Garlinghouse and Chris Larsen moved unregistered securities, selling around $1.3 billion in XRP.
The move sparked panic in the market, moving dozens of companies and investors to sell their holdings. Investors quickly amassed millions in losses and earnings.
A few U.S. crypto exchanges like Coinbase suspended XRP transactions.
Yet, the crypto did bounce back from its lows, although not to the levels we saw in 2017. The rebound in the crypto’s price is happening due to different reasons.
– Other markets like Japan’s FSA have stated that Ripple’s XRP is not a security.
– Ripple is seeing strong growth in Asian markets due to regulatory clarity.
The growth has been mixed, though. Ripple had to suspend and then terminate its partnership with MoneyGram because of the SEC suit.
So, should you invest in Ripple now? If you’ve already invested in the coin, is it time to sell off the crypto? Or, should you wait?
Ripple and SEC: What Should You Know? CNN Business covered the issue shortly after the SEC’s announcement. As mentioned, the problem surfaced from raising capital via offering unregistered securities, not registering these XRP sales results in violating several laws regarding federal securities.
Receiving services paid in XRP was another troubling allegation. Labor and marketing were among these claims. The SEC also framed Garlinghouse and Larsen for unregistered personal sales totaling around $600 million.
Ripple management responded that the move was an attack against cryptocurrency in general. They pointed out that the SEC had allowed people to use XRP as currency, and it “didn’t make sense” to change that without warning,
A fuller picture On the other hand, BeInCrypto offered a much more detailed report about the issue. For instance, it clarifies that the lawsuit comes from selling tokens outside of official channels. Nevertheless, they do point out the legal ambiguity behind the move.
For instance, XRP’s definition determines the lawsuit’s validity. That’s because the SEC describes XRP’s fundraising as “illegally selling a security.” The problem is that XRP is primarily described as a currency. If this definition is proven, the lawsuit should be acquitted.
That’s not the end. The article also points out several warning signs that pointed toward this lawsuit, despite most believing it to come “out of nowhere.”
Where did it come from? The regulatory status behind XRP was never clear, and Garlinghouse even mentioned it on different occasions. For instance, he mentioned concerns about being able to operate within the US.
The article also mentions that other cryptocurrencies have been labeled as “not securities” by the SEC. That includes the most prominent coins, like Ether and Bitcoin. People used Ripple’s XRP like those cryptocurrencies, and that’s what surprised people.
Given the initial concerns and that comparison, it’s easy to spot the problem. Despite policies with similar cryptocurrencies, the SEC never clarified Ripple’s status. These assumptions created confidence, which crashed after the lawsuit.
Initial forecasts Finally, the article mentions that XRP’s future is difficult to forecast. However, they do compare it with previous situations that have ended well. While the lawsuit could prove expensive, there are still politicians with a friendly attitude toward cryptocurrency.
For instance, the main crypto-rejector, Jay Clayton, recently resigned from leadership in the SEC. Other ICOs faced similar trouble and survived. For instance, Tezos faced a similar lawsuit for its unlicensed security offerings via ICO. It settled for $25 million and now has a $1.5 billion market cap.
Therefore, even if the settlement results disadvantageous for Ripple, they can still survive. Most of its users aren’t in the US. While prices are low right now, it might be an excellent chance to invest.
What do experts think? Additionally, several experts have already stated their opinions regarding the current legal trouble. Two articles stand out, so let’s go through them.
Opinions from crypto lawyers The Daily Hold released an article earlier this year about the subject. It goes through the opinions of two prominent lawyers: Stephen Palley and Gabriel Shapiro. They come from Anderson Kill and BSV Law, respectively.
Palley stated that Ripple’s likely to lose. The managers could try to leverage depositions and other clauses, but they’ll probably lose. Unless a sympathetic judge takes the case, they’ll have to settle.
On the other hand, Shapiro follows a similar thesis. He’s confident that Ripple is going to lose, but he’s curious about the remedy. Additionally, he’s doubtful about personal liability charges for Ripple’s founders.
Nevertheless, we already mentioned that Ripple’s settlement doesn’t have to result in losses. Only 5% of its consumer base is from the US.
Market reaction and financial analysis It all depends on if the court decides Ripple is a security. If they conclude that XRP is a cryptocurrency, exchanges won’t face legal consequences for continuing their support.
Now, the SEC suit may drag out for years. However, we think that there is a chance that SEC and Ripple may reach an out-of-court settlement – which can potentially see Ripple’s prices skyrocketing again.
Even if U.S. does ban XRP, it doesn’t seem to be the end of the coin as some fear. Many financial institutions from Asian and European countries have taken a liking to the coin, and it’s probably going to stay no matter how the SEC lawsuit ends.
If you’re already invested in this crypto, there is no need to panic sell. Hold on to it, unless you are already seeing a profit in your investments and don’t want to take more risks.