Have you heard of the XRP vs. SEC court case? On Thursday, July 13th, a historic ruling was made by US District Judge Analisa Torres in the ongoing court battle between the SEC and Ripple. Judge Torres deemed that Ripple Labs did not violate US Securities Laws by selling XRP tokens on centralized and public crypto exchanges. While announcing victory’s a little premature, it is a massive blow to the SEC’s lawsuit against Ripple, which deemed that XRP should be classified as a security.
It’s the first court case to rule in favor of a crypto company and could set a precedent for future lawsuits. The SEC has provided a long list of cryptocurrencies that include Cardano (ADA), Solana (SOL), and Poygon (MATIC), which the agency believes should be registered as securities.
While it was a major win for Ripple, the company also incurred a setback. The Judge also ruled that Ripple’s sale of XRP to sophisticated investors at institutions does violate US Securities Laws. This point differs from selling XRP on centralized exchanges because sophisticated investors do anticipate earning a profit from their investment.
Chart by TradingView.
XRP Price Surges Following Court Victory
Following the ruling, the price of XRP shot higher by more than 70% and surpassed Binance’s BNB Coin as the fourth-largest crypto token by market cap.
XRP is now behind only Bitcoin, Ethereum, and USDT Tether, with a market cap of over $42 billion.
Sentiment turned ultra-bullish during intraday trading as major exchanges like Coinbase and Gemini announced they would agree to re-list XRP on their platforms.
Coinbase stock shares jumped by 24.5% to close Thursday’s trading session just below its 52-week high price. COIN stock has now gained nearly 220% so far in 2023.
Is XRP a Security?
You might be wondering what the big deal is about a cryptocurrency being labeled as a security. First of all, it prevents the company from having to register the asset with the SEC.
Not only is this time-consuming, but it can also be a very expensive process. There are also very strict investor protection rules surrounding securities not currently in place for cryptocurrencies.
If the SEC gets its way, it could open the floodgates with lawsuits and harsher restrictions against these companies.
The ruling by Judge Torres is considered a landmark one because, up until now, courts had always sided with the SEC. You might have heard of the “Howey Test,” which determines if an asset should be considered a security or a commodity in the United States.
The definition from the Howey Test is often cited as the “investment of money in a common enterprise with a reasonable expectation of profits to be derived from the efforts of others.”
How do crypto companies try to avoid the Howey Test? One word: decentralization. Decentralized Finance or DeFi protocols are one-way crypto companies have avoided the SEC.
By being governed by a DAO or Decentralized Autonomous Organization and by having the founders staking their cryptos, it is difficult to identify one central enterprise.
When Judge Torres found that XRP is not considered a security, it was a ground-breaking decision. Now, every token on the SEC’s list can refer back to this precedence set by XRP.
Do Crypto Exchanges Need to Register as Securities Exchanges?
This question is still in the air even after Judge Torres’ ruling. One reason exchanges like Coinbase and Kraken hope that the XRP decision stands is so they do not have to register as securities exchanges. This is why several exchanges stopped listing XRP in the first place.
When you are a securities exchange, the regulatory crackdowns are harsh, and investors need protection. These regulations are just one reason many crypto exchanges move their operations from the US to overseas locations. For their part, the SEC is trying to avoid another collapse like that of FTX or Terraform Labs.
Crypto exchanges in the US have been a target of the SEC as both Binance and Coinbase are battling their own SEC lawsuits. These lawsuits revolve around registration requirements in the US to sell cryptos that the SEC refers to as securities. The SEC is also cracking down on staking services centralized public exchanges provide.
Is Bitcoin a Commodity?
One interesting and competing view is that the CFTC or Commodities Futures Trading Commission calls some cryptos, like Bitcoin and Ethereum, a commodity.
The agency believes that since the value of Bitcoin is the same no matter where it is traded, it should be valued as a commodity rather than a security. One Bitcoin is one Bitcoin everywhere in the world.
There is also no single entity behind Bitcoin, which is a testament to its true decentralization. ACCORDING TO SEC CHAIRMAN GARY GENSLER, the SEC agrees that Bitcoin and Ether should not be considered securities. You can also add Litecoin and now XRP to that list unless the SEC files an appeal in the Ripple case.
Which Cryptos Does the SEC Consider Securities?
If you are wondering which tokens the SEC targets, there is a long list. While it can’t be guaranteed that every token will skyrocket if a Judge does not deem it a security, some crypto investors are deliberately loading up on these tokens. So which tokens are considered securities by the SEC? Here is a list of some of the bigger names:
- DASH (DASH)
- Algorand (ALGO)
- Amp (AMP)
- BitTorrent (BTT)
- Terra USD (UST)
- Luna (LUNA)
- Tron (TRX)
- Filecoin (FIL)
- Binance BNB Coin (BNB)
- Binance USD (BUSD)
- Solana (SOL)
- Cardano (ADA)
- Polygon (MATIC)
- Cosmos (ATOM)
- The Sandbox (SAND)
- Decentraland (MANA)
- Axie Infinity (AXIS)
- Chiliz (CHZ)
- Internet Computer (ICP)
- Near (NEAR)
- Ethereum Max (EMAX)
In total, there are 68 different cryptos that the SEC considers securities under US Securities Law. It remains unclear whether or not the SEC will file lawsuits against all of these tokens.
There are concerns from exchanges that major tokens like Solana or Cardano will be considered securities and would therefore be heavily regulated.
It would be devastating to these tokens if they were delisted from some of the world’s largest centralized exchanges.
Does the Crypto Industry Need Regulation?
Is there a need to regulate the American crypto industry? Other countries worldwide have stepped up their efforts to regulate the industry.
For the most part, industry regulation is not a bad thing. It would provide clearer guidelines and definitions and be a safer place for investors.
The one problem with industry regulation is that there is no consensus path forward. The SEC wants regulation of cryptos as securities, while investors and exchanges want them to be commodities.
There does not seem to be much common ground, although Judge Torres’ ruling could be the first step in the right direction.
What Does the Future Hold for XRP?
How high will XRP rise from this news? Remember that XRP has a high market cap and 52 billion XRP already in circulation. There will be 100 billion XRP when all is said and done. That means the currency supply represents just over half of the XRP supply. This also likely means that XRP’s price will never get too high. Unlike Bitcoin, which has a set supply of 21 million BTC, XRP will continue to unlock tokens for years.
XRP hit an all-time high of $3.84, which presents a considerable upside from its current price. The project has received excellent news about being re-listed on Coinbase and Gemini. Price should rise with increased demand, but the real question is whether or not it can continue to see this bullish sentiment moving forward.
The ruling by Judge Torres could be a watershed moment for the US crypto industry. While it wasn’t all good news for Ripple, a win is a win. After the past few years, the crypto industry will take any victories. XRP enthusiasts should bask in the glory for now, but this is just one battle in what continues to be a long, drawn-out war between the SEC and cryptocurrencies.
