- SEC claims XRP sale qualifies to be an IPO.
- Ripple Labs maintains it didn’t participate in a securities sale.
- Ripple in an early win as court orders release of crucial documents.
- XRP price set to skyrocket if SEC loses the lawsuit.
On the 22nd of December 2022, the SEC charged Ripple Labs and two executives for illegally raising $1.3 billion in security sales. The founders of the tech firm conducted an XRP digital sale in 2013 to finance their operations. The SEC moved to court seven years later to challenge the actions claiming that Ripple’s fund-raising was an unlawful IPO. The company, through its lawyers, has countered the lawsuit with claims that the regulator was acting with bias.
As investors and enthusiasts keenly follow the court proceedings, the final judgement will have a resounding impact on the entire crypto sector.
The SEC vs. Ripple
The SEC’s Claims
The SEC’s filings allege that Ripple Labs participated in security sales to fund the firm’s operations. Some executive members, Garlinghouse and executive chairman Chris Larsen also enriched themselves from the sale. The commission further claims that the tech company failed to register the securities with the commission as legally required. It maintains that it is responsible for safeguarding investors and was within its mandate to charge Ripple.
The commission applied the “Howey test” of determining securities following the 1946 Supreme Court Ruling on SEC v. W.J. Howey. In the ruling, security is any asset derived from other people’s efforts and sold to make profits. Based on this definition, XRP passes as a security, so SEC believes Ripple Labs acted against the law.
The San Francisco-based start-up explains that XRP is a virtual currency, not an investment contract like company shares. In its defence, the company argues that the commission is biased and unprofessional in its definition of “securities” when it comes to virtual coins.
Ethereum financed its initial operations with an initial coin offering, which should be considered a security, going by SEC’s allegations. It hence beats logic for Ripple to be charged for violating securities law while Ethereum was given a clean pass.
Ripple’s legal team has claimed that the former SEC director had publicly endorsed the view that digital currencies were not securities. William Hinman said this in 2018 while referring to Ether.
This will happen if Ripple Wins the Lawsuit
To the Crypto Community
It will be shameful for the commission to lose this case. First, the financial watchdog will appear wrong on the law and inconsistent with its method of enforcing the regulation. It will also come out malicious towards some crypto projects like XRP. The Commodity Futures Trading Commission (CFTC), which regulates most digital coins, will likely take over as the primary regulator.
It’s also likely that other crypto projects that have shied from selling their token to raise funds will start doing so. To avoid another lawsuit, digital currency projects will follow Ripple’s similar model of fundraising.
However, this unregulated model may also lead to increased organized fraud. If that happens, the relevant government bodies may be forced to step in and develop strict regulations for the industry.
To XRP Token
Investors will be the most impacted by the court ruling. A win for Ripple Labs will mean the company is free to resume its operations fully. In addition, partners like Bank of America and Standard Chartered, who had already started supporting the project, will pump in more funds to accelerate execution. XRP will begin to relist on major exchanges like Coinbase, Binance, and Kraken, ready for investor takeover. Judging from the coin’s momentum before the SEC lawsuit, we predict a solid uptrend to around $9 by 2025. Once the company is fully stable and onboarding more banks to use XRP for cross-border transactions, the token’s price will shoot to as high as $30. Crypto analyst, the Altcoin Beast, thinks XRP price will soon skyrocket to a high of at least $17 by 2024. See Altcoin Beast chart analysis below.
XRP’s future and that of other crypto projects in the US lies in the hands of the court. Apart from the XRP token the value of the entire crypto sector will explode if the court sides with Ripple. On the other hand, it’s not yet clear how the firm will use SEC’s communication documents to influence the judge’s final decision. There is still likely a messy litigation process ahead. If you want to invest in XRP, make sure to get your research and analysis right.