- XRP is not a security after Ripple scores a landmark win against the SEC.
- Experts argue that XRP’s non-security status implies Ripple founders and the firm cannot be held accountable for large volume sales of the token.
- The judgment opens more crypto projects and traders to pump and dump schemes with zero accountability or recovery from the founding team.
Ripple's win in the Securities & Exchange Commission (SEC) lawsuit has already drawn criticism from the crypto community. Experts speculate that Ripple’s status as a non-security gives XRP and its founders a free pass to dump their token holdings, adding to selling pressure across exchanges.
Previous instances of crypto founders and developers “pumping and dumping” tokens have resulted in massive losses for market participants. XRP’s status as a non-security is likely to promote such projects, negatively influencing market participants in the ecosystem.
XRP's “non-security” status could jeopardize other cryptocurrencies for this reason
Crypto market participants rejoiced following the ruling, pushing XRP price up 74% at times. However, several experts in the crypto community have taken the contrarian stance. These pundits have examined Judge Torres’ ruling on XRP and identified the loopholes that could negatively impact traders in the ecosystem.
Antonio Juliano, founder of dYdX, believes that if a token like XRP that has no discernible purpose except for it to be dumped in the open market is not a security, then how does that help other cryptocurrencies.
Juliano’s statements warn crypto market participants of “pump and dump” schemes in the market.
If XRP, a coin with no discernible purpose except for the company/founders to dump on you, isn’t a security what does that say about the rest of the market?— Antonio | dYdX (@AntonioMJuliano) July 13, 2023
Projects that engaged in “pump and dump” schemes might be legal
Pump and dump schemes have affected crypto market participants for years. Projects that release their token on an exchange and list it on Coinmarketcap or CoinGecko, drawing hordes of investors to the project and dumping the tokens on exchanges.
Judge Analisa Torres decision to label XRP as a non-security in its secondary market sales could, therefore, adversely affect the crypto ecosystem, opening loopholes for “pump and dump” schemes and projects in the community.
Preston Byrne, partner at Brown Rudnick and a crypto entrepreneur, believes this is not the end of the road for XRP. The SEC is currently reviewing the decision, and this could mean that the case might go to trial soon.
The Ripple summary judgment is obviously not the last word on the issue; if Ripple Labs accepts the limited win here (which they won't) they're still turbo f***ed because they've got multi-billions of dollars in institutional sales that they're on the hook for.— Preston Byrne (@prestonjbyrne) July 13, 2023
SEC vs Ripple lawsuit FAQs
Why are the US Securities and Exchange Commission and Ripple litigating?
The United States Securities and Exchange Commission (SEC) brought charges against Ripple and its executives alleging that the cross-border payment settlement firm raised more than $1.3 billion through an unregistered asset offering of the XRP token. Ripple argues that XRP should not be treated as a security or an investment contract, just like the SEC looks at Bitcoin or Ethereum, citing views from former SEC Director of Corporation Finance William Hinman.
When did the SEC vs. Ripple court case start?
The SEC charges were made public in December 2020. The long-running litigation, presided by Judge Analisa Torres, seems to be close to its end as both parties fail to reach an agreement.
What are the effects on XRP price?
Ripple is the largest holder of the altcoin XRP. The SEC’s charges against Ripple resulted in a mass delisting of XRP across crypto exchange platforms and a sharp decline in the token’s value, which used to be the third crypto asset by market capitalization after Bitcoin and Ethereum. A positive outcome for Ripple in its case against the SEC would benefit XRP’s price, while a SEC win is likely to weigh further on the asset, experts say.
Which implications could the ruling have on the overall crypto industry?
The final verdict in the SEC vs. Ripple lawsuit is the most highly anticipated in the crypto ecosystem. The lawsuit is expected to set precedent for other open cases that affect dozens of digital assets. A ruling in favor of the SEC would most likely bring further regulation to the sector as it would classify most tokens as securities. On the contrary, Ripple’s win would be interpreted as a validation of the crypto markets and could boost investors' confidence if current legal uncertainties surrounding digital assets in the US are solved.
What about secondary sales of XRP among traders?
The ruling may also include views over XRP secondary sales, which directly affects investors who trade XRP on cryptocurrency exchange platforms. Pro-Ripple attorney John Deaton, who filed an amicus brief in the SEC vs. Ripple case, suggests this matter is likely to be addressed. A ruling stating that secondary sales don't qualify as securities, contrary to what the SEC claims, is likely to be beneficial for XRP.
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