Ripple, the company behind the XRP cryptocurrency, has won a partial victory in its long-running legal battle with the US Securities and Exchange Commission (SEC). A federal judge ruled that XRP was a security when Ripple sold it to institutional investors in the past but not to the general public on crypto exchanges.
This is a major development for Ripple and the crypto industry, as it finally brings clarity to the regulatory status of XRP and, by extension, other digital assets.
What was the Lawsuit About?
The SEC sued Ripple and its executives in December 2020, alleging that they raised over $1.3 billion by selling unregistered securities in the form of XRP tokens. The SEC claimed that XRP was an investment contract, meaning that buyers expected profits from Ripple's efforts to develop and promote the network.
However, Ripple argued that XRP was a currency, not a security, and that it had no contractual obligations to XRP holders.
Why Is This Ruling Important?
The ruling by US District Judge Analisa Torres is significant for several reasons. First, it recognizes that XRP has different characteristics depending on who buys it and how.
Institutional investors who bought XRP directly from Ripple may have been aware of its securities-like traits, but retail traders who bought XRP on crypto exchanges were not. Therefore, the judge concluded that XRP was a security for the former group but not for the latter.
Next, it challenges some of the SEC's arguments as to why XRP was a security based on the Supreme Court's "Howey test." Judge Torres disagreed that secondary-market buyers were promised anything by Ripple or that they relied on Ripple's efforts for their returns. These are key factors in determining whether an asset is an investment contract or not.
Finally, it sets a precedent for other crypto projects that face similar lawsuits from the SEC. The ruling also implies that crypto projects can avoid securities regulations by selling their tokens only to retail investors on exchanges rather than to institutional investors directly.
What Comes Next?
The ruling is not the end of the lawsuit, as there are still unresolved issues between Ripple and the SEC. For instance, the judge did not rule on whether Ripple's executives violated securities laws by selling their personal holdings of XRP.
However, the recent ruling could pave the way for a settlement between the parties, as both sides have some grounds to claim victory. A settlement could involve Ripple paying a fine and agreeing to certain restrictions on its future sales of XRP to institutional investors. A settlement could also lead to more regulatory clarity for XRP and other crypto assets in the US market.
Ripple's CEO, Brad Garlinghouse, expressed his optimism about the outcome of the lawsuit on Twitter, saying:
“We said in Dec 2020 that we were on the right side of the law, and will be on the right side of history. Thankful to everyone who helped us get to today’s decision – one that is for all crypto innovation in the US. More to come.”
XRP Breaks Lose
Following the landmark victory for Ripple, XRP recorded a historic rally, surging from under $0.50 to the $0.95 area within a few hours. This surge quickly put XRP at its highest point since December 2021.
However, keeping with the laws of gravity, the price slowly declined towards the $0.70–$0.750 axis, where it currently trades. In a way, XRP is in uncharted territory, considering this is its first day of trading with regulatory clarity.
Over the coming days and weeks, market sentiment will return as the key factor driving price action for XRP. That said, the possible application for an IPO by Ripple will serve as a price boost.
XRP has also scaled a few places on the crypto rankings and now controls the number 4 spot, behind Tether (USDT).
XRP Statistics Data
XRP Current Price: $0.74
XRP Market Cap: $39B
XRP Circulating Supply: 52.5B
XRP Total Supply: 100B
XRP Market Ranking: #4
This article should not be taken as financial advice. It is essential to conduct research before making any investment decisions.