Due to the filing of a lawsuit by the U.S. Securities and Exchange Commission (SEC) against Ripple Labs, Inc. in December of 2020, US residents have been unable to trade XRP tokens since January 30, 2021. But where do things currently stand, and when will we see a final ruling or settlement in in this case that will hopefully release the SEC’s grip on XRP? And why does a recent ruling in another crypto case (SEC vs LBRY) gives hope to the XRP community?
Where It All Started
Ripple Labs, Inc. is a fintech/crypto company that was founded in 2012 (it was originally called OpenCoin). They created the XRP token which had grown substantially through the years, well, until the SEC sued them.
In December 2020, the U.S. SEC filed a case against Ripple Labs, Inc., Christian Larsen (co-founder and former CEO of Ripple), and Brad Garlinghouse (current Ripple CEO) for the lack of investment contract and for not registering their sales and offers of XRP tokens. According to them, this is a violation of registration rules outlined in the Securities Act of 1933. Needless to say, the suit gave rise to doubts as to the future of XRP when crypto exchanges in the U.S. stopped trading XRP tokens over a year ago.
The SEC has claimed that Ripple raised over one billion dollars from the sale of XRP which was not registered as a security offer to investors. Ripple, however, said that XRP is not a security and should not be treated as an investment. Furthermore, Ripple said that the SEC never gave them “fair notice” that their XRP token sales violated securities laws.
Where Things Stand
As the case heats up, the SEC recently asked for a Summary Judgment ruling as to whether XRP should be classified as a security or a commodity. In response, the judge could grant either side a win without a trial, or decide to narrow the issues that go before a jury. And most recently, Ripple Labs Inc. said in court papers Friday, March 3, 2023, that a recent U.S. Supreme Court decision supports one of its key defenses in the SEC’s case.
Ripple’s General Counsel Stuart Alderoty has expressed his belief that they will win the case based on his assertion that not one single element of the Supreme Court’s Howey Test has been adequately met by the SEC. They’re also saying that XRP is not an investment because it doesn’t give investors voting rights or ownership rights as others do.
Ripple’s CEO has also expressed optimism that there will be a resolution either by settlement or judgment in Ripple’s favor in the first half of 2023.
SEC vs LBRY: New Hope for Ripple’s XRP Community
LBRY was created to develop an open-source ecosystem, a decentralized media-sharing system. In 2016, LBRY launched its native currency LBC which could be used via the LBRY blockchain to share content, reward creators, and pay miners who supported the network.
In March of 2021, SEC filed a lawsuit against LBRY declaring that the blockchain company was selling and offering LBC in the form of unregistered securities, thereby violating federal securities laws.
In November of 2022, the SEC was successful in a court case against LBRY in which the court summary judgment favored SEC’s claim that LBRY provided LBC as a security. However, this February, 2023, in the latest decision on the SEC vs LBRY case, the judge decided that the sales of the LBC token on the secondary market are not categorized as securities – which means that LBC is a non-security. This judgment could work in favor of Ripple, as the XRP community has come out to say that the ruling meant that XRP was also a non-security.
Will XRP Pass the Howey Test?
The debate over whether XRP can be considered a security has been going on since the cryptocurrency was first introduced in 2012. Again, based on the Howey Test, which the SEC uses to determine if an investment is security, the primary question is whether or not the profits earned from investing were “derived from the efforts of others.”
As we all know, it’s not easy to tell how profits are earned from digital currencies because of their decentralized nature. Unlike stocks, cryptocurrencies are not backed by institutional bodies. Therefore, trying to correctly categorize investments in cryptocurrencies such as XRP is really quite difficult.
Right now, the question of whether XRP constitutes a security or not remains debatable. Until the court releases its final verdict, only then will we know if U.S. regulators legally recognize this currency as security.
Is XRP a Commodity or a Security?
The U.S. Southern District Court of New York will soon decide how cryptocurrencies are regulated in the future, and it’s verdict will settle once and for all whether XRP could be classed as a commodity or security.
Remember, the U.S. SEC has stated that Ripple has raised more than one billion dollars through the sales of unregistered security offerings. In defense, Ripple has cited previous statements made by the SEC itself which suggest that XRP is not a suitable candidate to be treated as a security mainly because of its decentralized nature as compared to other cryptos like Bitcoin (BTC) and Ethereum (ETH).
In the event that the trial against Ripple is ruled unfavorably, this could lead to huge fines being imposed on other digital assets and weaken the confidence of investors in the entire crypto industry.
The court’s decision will also set new guidelines for what constitutes legally defined virtual assets and securities in the United States.
How Will the Verdict Affect the Crypto Market?
The lawsuit will likely be decided in 2023, but regardless of the outcome, it could create serious precedents for other cryptocurrencies too. If Ripple were to be found guilty, it could effectively make many investments in XRP unenforceable. Worse, this could also trigger more lawsuits against notable cryptocurrency-related businesses or products that could have carried out similar activities as those that are being alleged to Ripple.
The SEC wants to regulate the crypto industry, so winning the court decision against Ripple could potentially start the ball rolling. Ripple and its executives would also likely face a hefty fine. However, if Ripple wins, it will solidify XRP’s legality in the US market and probably increase its price.
The final outcome of this decision will either be encouraging or discouraging for the future of cryptocurrency investors. Whatever way the events develop, there is one thing that is certain: this ruling will result in significant changes across all areas of the cryptocurrency world.
XRP was offered by Coin IRA prior to the SEC’s lawsuit against Ripple, and XRP is still on the Coin IRA Digital Asset Self-Trading Platform, but trading is inactive right now. If Ripple wins the case, trading will hopefully be reactivated on the platform, allowing our account holders to once again trade XRP. If you are an XRP fan and want to be in a position to act quickly in the event the suspension is lifted, our suggestion is to keep a close eye on the news updates surrounding the case and make sure you keep an available balance for trading in your account as mid-2023 gets closer, so you are ready to pull the trigger if and when a favorable decision is made, and trading is restored. So, let’s cross our fingers, not only for the XRP community but also for the entire crypto industry.
To learn more about Crypto IRAs, visit CoinIRA.com or speak with an expert at 888-998-COIN.