The case between Ripple and the SEC is crucial to the cryptocurrency industry. It started in December 2020 when the Securities and Exchange Commission filed a lawsuit against Ripple and two of its executive employees. Ripple is a critical player in the cryptocurrency industry.
According to reports, the case investigates whether Ripple and its officials sold unlicensed securities through XRP tokens. If this were true, the case would threaten the company and the cryptocurrency industry at large.
If the charge handling the case rules that XRP is indeed security, Ripple will crumble. The ruling would also confer a potent weapon to the SEC. If this happens, the agency would have cause to go after other projects on the block.
However, despite all the pressure, Ripple commits not to settle and instead fights back against the SEC. On Ripple’s charge, the company started building a solid legal defense against the case with the SEC. Ripple uses the case to call out the SEC for their questionable conduct publicly, and the case that started almost two years ago is finally approaching its end.
Along the way, Ripple’s legal team has managed significant victories. Among the wins was the right to overthrow Bill Hinman and compel the commission to share specific documentation. The documents described some of their private information related to the case. Hinman is a former SEC official.
What Are Securities
Securities are anything that represents part of the value of an organization or company and may include stocks. They are subject to stricter regulations than other currencies and commodities like gold or oil.
Securities enable people who have money to identify individuals looking for investment capital. They are readily traded and make markets more efficient. Most cryptos are securities, particularly those sold to investors through an ICO. This is because most crypto projects with an initial coin offering (ICO) lack a functioning product at the beginning.
Because of this, the tokens sold serve as a promise to the buyers during the ICO. With this promise, the buyers are sure that the company will develop whatever technology they commit to launching. In so doing, it confers value to the issued tokens. The tokens cannot be considered stock shares. However, they bear resembling features, which is why the United States law considers their securities.
Is XRP A Security Or A Cryptocurrency?
When the SEC files a case against companies, the norm has permanently settled as opposed to fighting. This is partly because the Securities and Exchange Commission will only sue when they believe they have a strong case and partly because litigation is costly.
The Ripple lawsuit filed by the SEC is crucial. This is worse if the agency wins because XRP will be considered a security instead of a currency in the U.S. Such an outcome would set in motion a series of events that would cause other crypto assets to be classified as securities.
Notwithstanding, Ripple has enough financial muscle for such a case, having raked in vast sums of money through the sale of XRP. This means that the company has adequate resources to employ the services of some of the best securities lawyers in the country, such as Mary Jo White, the former SEC Chair.
Noteworthy, however, even the most acclaimed lawyers in the world will shy away from defendants evidently on the wrong side of the law. Citing Stephen Palley, “Hiring Mary Jo White is meaningless—it just means they have much money. You can hire fancy firms, but the law is the law.” Palley is a crypto lawyer that has remained skeptical about Ripple’s chances of success in the case from the beginning.
Legal Precedent Between XRP and SEC Case
From the cryptocurrency side, the argument is that contrary to stocks, a network’s ownership and operation are distributed and decentralized. This means that there is technically no one organization behind the project. Although the XRP network is centralized primarily compared to other cryptos, there are arguments that it remains decentralized enough to qualify for classification under the same column as Bitcoin.
Nonetheless, the Securities and Exchange Commission insists that XRP is a security. This claim is built atop Ripple, Brad Garlinghouse, and Chris Larsen’s internal correspondence and marketing strategies. Per the allegation, this personnel knew XRP was dangerously close to being considered a security under the Howey Test but participated in practices that make for third-party efforts related to the value of XRP assets.
From the discovery decisions, it appears that the strategy employed by Ripple’s defendants to put the SEC on trial has caused different opinions. It remains unclear whether Ripple has found anything significant among the SEC’s papers during the pre-trial stage of the case. It is also unclear if the company’s aggressive techniques will bear fruit.
According to Stuart Alderoty, Ripple’s top lawyer, the company has committed to fighting hard to defend against the case. The decision comes as Ripple commits to achieving the much-needed clarity that will enable the industry to move forward and prosper. Stuart also expressed his belief that the SEC’s claims would be dismissed.
Garlinghouse has joined other Ripple officials to troll the SEC with the case dragging on publicly. They are accusing the agency of miscalculating their moves to go after Ripple Company.
Suppose the SEC wins this case against Ripple. In that case, the entire crypto market will be affected as the SEC will have the confidence and willpower to go after other crypto projects by launching a series of enforcement actions.
XRP Demand Remains High
The demand for XRP is still high outside the U.S. as external exchanges strive to list the token on their platforms. Even so, there is still some skepticism about the token’s fate. Jesse Powell, the CEO of Kraken Exchange, recently delisted XRP for residents in the U.S.
According to Powell, XRP may become a liability depending on how the court rules. In his opinion, if the court finds XRP to be security, then the SEC will claim the exchanges knew about it all along. Reportedly, such a ruling will see exchanges operating within the U.S facing changes as a consequence of the ongoing conflict with the SEC.
What Happens If Ripple (XRP) Wins Its Case Against The SEC
If the ruling favors XRP, then the SEC and Gensler will become weaker, but this will not mean the end of the ballgame.
If Ripple wins, the positive outcome will cause a surge in the price of XRP and other tokens. This is because of confidence among investors and traders.
In the same way, a win for the SEC would not close the agency’s hawkish eye on the crypto industry. This is unfortunate for proponents in the cryptocurrency industry as the Ripple lawsuit is not a one-and-done case. It is expected that the SEC cannot ignore cryptocurrencies forever.
Although United States citizens have limited opportunities to transact XRP on local exchanges, the token still has much support outside the country. Ripple Labs, Inc. continues to create new business opportunities by expanding its operations with Japanese banks. The company is also pioneering a new ledger project supporting central banks.
Should U.S regulators be unable to make more accurate regulations on the country’s blockchain, Ripple is looking to relocate. This is because its usability and centralized nature are valuable across the entire financial system.
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