SEC CAUSES WAVES FOR RIPPLE
Last week
we saw the Securities and Exchange Commission, or SEC, of the USA file
charges against Ripple alleging that the XRP coin is classified as a security.
In this 70+ page filing, the SEC is accusing Ripple, along with executives Brad Garlinghouse and Chris Larsen of raising $1.3 billion through an unregistered sale of digital asset securities that has been ongoing. Garlinghouse and Larsen are also accused of failing to register their personal XRP sales which are estimated at around $600 million.
There are numerous other
allegations against Ripple and the two executives in the lengthy report.
Garlinghouse preceded the lawsuit being made public by tweeting about it
coming, which led to the initial price drop of XRP by around 24%.
24 hours later as the report
made public and news broke everywhere, we saw the asset tumble even further
down an additional 50% before rebounding and at the time of this writing is
sitting down around 47% from a week ago. This report is neither pro nor against
the XRP, but intended to do two things:
1. One is
to look
at the implications of the charges and
what they could mean for the XRP coin and price action.
2. The
second is to evaluate how this could impact many other
altcoins in the market if
Ripple and XRP are to be found guilty of these charges
AN ASSAULT
ON CRYPTO AT LARGE?
As CEO
Garlinghouse mentioned in his response, he feels that this could be an “assault
on crypto at large.” He claims this could have a snowball effect on the
industry as a whole, affecting most altcoins, and subsequently that could
impact Bitcoin and Ether. However, other altcoins already have faced the proverbial
firing squad of the SEC and
those have not faced the repercussions we have seen with XRP already. So we
will also look at what makes this different.
Looking at
the charges levied against Ripple and the two executives, it could appear that
the SEC
is looking to make an example of them.
However, some of the allegations have even been brought to light over the years
by former XRP fans, claiming that Garlinghouse and other executives were
encouraging people and businesses to buy XRP, while simultaneously selling off their holdings. This lack of transparency could be one of the
biggest reasons for them to be targeted. On top of the charges listed above,
Ripple is also alleged to have distributed XRP for labor and market-making
services. The SEC has not done a great job of clarifying what makes
cryptocurrency a security, but stacked with the other charges, it appears XRP
could be deemed a security.
WHAT IS XRP
ACCUSED OF?
Looking through the report,
Garlinghouse sold XRP positions he held while repeatedly “touting he was very
long XRP” meaning he was holding and expecting a rise in value.
The
report also claims that in 2012 Ripple received advice that XRP
will likely be considered an investment contract, which Larsen and Garlinghouse allegedly
ignored. This opens the door for not only corporate fraud charges but also
personal fraud for the actions of Garlinghouse and Larsen.
The SEC alleges Ripple
created an information vacuum such that Ripple and the two insiders with the
most control over it—Larsen and Garlinghouse—could sell XRP into a market that
possessed only the information Defendants chose to share about Ripple and XRP.
Based on past actions by the SEC for other cryptocurrency companies, Ripple at
the minimum will be forced to pay a huge fine.
They could also be forced to
relinquish all XRP coins held by the company. Depending on the definition of
holding, they could be forced to relinquish the XRP being held in escrow, if it
is even possible. More than half of the 100 billion XRP coins are not currently
in circulation.
EXCHANGES
ARE HALTING XRP TRADING
Ripple
could decide to relocate outside the USA, something they have
threatened in the past prior to
these charges, blaming it on the lack of clarity in the current regulations.
However, with the intended
purpose and use case of the XRP coin, it could be hard for XRP to be adopted
any further due to black eye from the SEC as multinational companies that have
dealings in the USA would be forced to exclude their USA related business from
any XRP dealings. The fallout that was seen since the charges were announced
has been tremendous.
Besides the drastic drop in XRP price, numerous exchanges have halted the trading of XRP. Smaller exchanges
like Beaxy and others halted trading on day one of the charges being made
public. Since then, larger exchanges like Bitstamp have halted all trading of
XRP solely to all USA customers either immediately or with a close impending
deadline. If XRP is formally declared to be a security, any entity that offers
the buying and selling of it would need to be licensed to do so. Most exchanges
would either remove completely or halt trading to USA based customers
Distancing
from Ripple...
A spokesperson at Coinbase,
one of the world’s largest exchanges and possibly the largest in the USA, said
Coinbase is considering its options when asked about the SEC lawsuit against
Ripple. Financial analyst and long time critic of XRP and Ripple stated:
"Any
exchange that allows trading in XRP is potentially breaking the law, so
exchanges are bound to delist it."
Cryptocurrency
index funds, such as Bitwise, have already liquidated their XRP holdings and
others are expected to follow suit. Moneygram made a public statement
distancing itself from Ripple saying they do not use RippleNet or XRP. Many XRP
fans are calling this a shakeout before new high prices, and many who oppose
XRP are calling
this the beginning of the end.
Either way, proceed with caution if trading, buying, or holding any XRP at this
moment. It is very risky, as many feel the risk is much greater than any
potential reward.
Technical
analysis on the chart at the moment is useless with all the potential
fundamental pressure that could arise in the coming weeks and months,
especially if more major exchanges limit trading, or halt trading and delist
completely. Any of those actions could cause a serious tumble in the price to
lows that have not been seen in years. Just proceed with caution if you choose
to trade XRP for now and do not rely too much on your technical analysis or the
TA of others. If you would like to read the full report of the charges against
Ripple and the two executives, you
can find it here ◀️
THERE WERE
SIMILAR CASES IN THE PAST
Now
that we have given an overview of the hurdles and obstacles that Ripple and XRP
are facing, what about all the other cryptocurrencies out
there in the crypto world?
The SEC has taken numerous
actions against past Initial Coin Offerings, or ICOs. Some action against other
top market value cryptocurrencies did not result in delistings or halting of
tradings. To understand why we need to look further into how they differed from
XRP.
1. Block.one,
the company behind EOS just
13 months ago was fined $24 million for not registering its ICO properly as a
security offering. If you look at the price action around that time, it did
negatively impact the price of EOS was minimal and exchanges did not halt
trading or even delist. The claim for EOS highlights how many cryptocurrency
ICOs fall. The initial sale of the coin or token can be classified as a
security because there are reasonable expectations for profits from
investments, however, after the launch and the project achieves true
decentralization, the coin or token can then possibly be considered a utility
token and not a security.
2. The same
was the case for Tezos, which
agreed to a $25 million settlement from a class-action lawsuit, which may
appease SEC regulators from going after them. Tezos, much like EOS, may only be
classified security for the time of the ICO, and could still be fined for only
the offerings to US citizens. These cases differ somewhat from the Ripple and
XRP charges, as the SEC is saying that XRP is still considered security.
HOW TO CLASSIFY
A SECURITY?
Depending
on the outcome of the charges against Ripple, especially around the XRP coin, we could
see numerous other cryptocurrencies fall in the crosshairs of the SEC. The current test to determine if an asset is a
security or not is called the Howey Test which refers to a Supreme court case
from 1946. Obviously, the USA
and SEC need to really plan to update what and how they classify
cryptocurrencies as the digital world is evolving quickly.
Any lack of
clarification, or worse, regulations that stifle innovations, could cause the USA and any other foreign
governments that act in accordance with those regulations, to quickly fall
behind and fail to benefit from the revolutionary technologies that are
evolving or will evolve from development in the cryptocurrency and blockchain
space. One interesting development since the announcement of the Ripple charges.
The Ripple suit was one of
the last actions of an outgoing SEC chairman, Jay Clayton. Clayton had informed
President Trump prior that he planned to step down on December 23. His
replacement has been announced as Elad Roisman. Roisman has been an advocate
since 2018 of clear, fair, and transparent laws and regulations that will give
certainty to the cryptocurrency markets. Many in the space see him as having a
pro-crypto stance and could potentially lead to the first Bitcoin ETF finally
being approved in the USA. However, it is noted that once President-elect Joe
Biden assumes office, he will select a permanent successor, which may or may not
be Roisman.
TO
CONCLUDE...
So much uncertainty in the
air for Ripple, XRP, and for the SEC, it is important to keep up with any
further developments in these cases, as they could not only have implications
for XRP, but also for many other cryptocurrencies.
This also shows why it is so
important to keep up with not only the technicals you see on the chart, but
also the fundamentals, including developing news that could impact the price of
digital assets, both negatively and positively, that you may hold or trade.
Written by
Blockchain Wayne and NewsCrypto Team