While Ripple CEO Brad Garlinghouse has remained defiant in the face of the SEC’s lawsuit, the XRP token continues to lose value with multiple exchange de-listings and today a halt to trading on major US exchange Coinbase. Can the XRP price ever recover?
XRP holders were in a state of jubilation as the token’s price surged as high as $0.90 on leading US exchange Coinbase in November. Ripple had gained over 150% in that month alone, and XRP advocates were expecting continued gains towards its all-time high of $3.
Just one month later, and the improbability of XRP ever reaching $3 again is now beginning to seem more like an impossibility. On Dec. 22, the United States Securities and Exchange Commission (SEC) filed a lawsuit against Ripple Labs Inc., naming co-founder Chris Larsen and CEO Brad Garlinghouse as defendants in the suit, for an unregistered “digital asset securities” offering through which $1.3 billion was raised.
In the SEC’s filing, it argues that XRP has always been a security and should have been registered with the US regulator before being sold to citizens within the United States. The SEC filing also implicates both Ripple founder Brian Larsen and CEO Brad Garlinghouse, who were able to acquire over $1.3 billion dollars from the sale of XRP tokens.
On the news of the SEC charges, the Ripple associated XRP token sunk from the third to fourth largest crypto by market cap and lost a quarter of its value in the ensuing 24 hours.
The SEC’s announcement has prompted a slew of major crypto exchanges delisting or freezing the XRP token. The freeze on trading and de-listings began on smaller exchanges like OSL and Beaxy but more recently, the major U.S.-based trading platforms BitStamp and crypto giant Coinbase have now announced they will prohibit customers from trading and depositing XRP starting January 2021.
On the announcement from Coinbase today, the XRP price has immediately fallen close to another 20% and is now trading at $0.22 at the time of writing.
The SEC’s Case Against XRP
The SEC’s complaint against Ripple appears quite damning as well as straight forward. The regulator argues that Ripple’s executives made no attempts to pursue an exemption for registering XRP as securities despite warnings—in turn violating the Securities Act of 1933 for the sustained practice of illegal and unregistered securities.
The lawsuit specifically lays charges and Larsen and Garlinghouse for aiding and abetting Ripple in the sale of XRP which it constitutes as unethical as both individuals sold large amounts of the token—1.7 billion XRP and 321 XRP respectively. The suit also names Ripple’s founder and CEO as to create an avenue to recover funds as the initial XRP token sale was facilitated through XRP II LLC.
Per the SEC filing:
“Defendants continue to hold substantial amounts of XRP and—with no registration statement in effect—can continue to monetize their XRP while using the information asymmetry they created in the market for their own gain, creating substantial risk to investors.”
Specifically, the SEC’s issues with XRP stem from the fact that the digital currency appears to satisfy key elements of the “Howey test” under federal securities laws—which further raised the question of how exactly Garlinghouse and Larsen were able to take part in the XRP token’s sales efforts.
A Closer Look
The SEC’s lawsuit appears to have condemned the price of XRP, as institutions are extremely unlikely to bet against the regulator and will avoid further investment into the cryptocurrency until the legal battle is settled, which in turn will dry up liquidity.
Should the SEC successfully sue Ripple, the crypto firm will be framed as the primary violator and will have serious ramifications for both Larsen and Garlinghouse for their “unethical” participation in the XRP sales.
Per the Filing:
“Ripple engaged in this illegal securities offering from 2013 to the present, even though Ripple received legal advice as early as 2012 that under certain circumstances XRP could be considered an “investment contract” and therefore a security under the federal securities laws.”
The SEC does not just want Ripple’s profits from the sale of the unregistered securities, but it argues that as both Larsen and Garlinghouse was repeatedly warned and is pushing to ban both executives from ever participating in such an offering again.
The SEC states:
“Ripple and Larsen ignored this advice and instead elected to assume the risk of initiating a large-scale distribution of XRP without registration.”
The US SEC is also seeking an unspecified civil monetary penalty, the exact amount of which has not yet been made public.
Throughout the ongoing SEC saga, Garlinghouse has continuously stated that he will fight the SEC in court for its unwarranted actions against Ripple and will not rest until he and the firm are cleared of any wrongdoing—further revealing that he had an option to settle with the SEC but will stand up for the principle.
XRP Price Recovery Possible?
While the case against Ripple appears damning, it may not be over for XRP just yet.
As Ripple Counsel Michael Kellogg accurately told Forbes:
“Other major branches of the U.S. government, including the Justice Department and the Treasury Department’s FinCen, have already determined that XRP is a currency.“
Kellogg argues that the currency designation means XRP transactions fall outside the scope of federal securities laws. He added:
“This is not the first time the SEC has tried to go beyond its statutory authority. The courts have corrected it before and will do so again.”
The SEC has been constantly criticized for overreaching in its pursuit of the digital currencies, none more spectacularly than its gross misuse of power against Telegram’s TON network, as the SEC was somehow able to stop it from launching anywhere in the world. Another concern for XRP holders arguing that token is not viewed as security in Asia and Europe.
XRP’s fate now may rest entirely in the hands of the American judicial system. At the time of writing, XRP is trading at $0.22, with the asset losing over 50% of its value in the last seven days alone.
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