On Thursday, an US judge pronounced an verdict that Ripple has not violated any of the Laws of Security Exchange, Which resulted in remarkable increase in price of XRP from $0.469 to $.93 , almost doubled the price. One of the top cryptocurrency Exchange, Coinbase, who earlier Restricted XRP from trading also tweeted that the will list XRP on both Spot and Derivative Pair. This verdict from US District Judge Analisa Torres seems to be first victory for XRP ( Ripple Wins ) while SEC also Scored an partial victory as the judge ruled that XRP is an security while selling to institutional investors, as it fulfils the conditions of Howey Test.
What Is the SEC vs. Ripple Lawsuit?
U.S. Securities and Exchange Board (SEC) had filled a lawsuit against Ripple Labs Inc., the company behind the cryptocurrency XRP, in December 2020. SEC charged that ripple conducted an unregistered securities offering of over $1.3 billion.
The SEC lawsuit revolves around the point that according to US Securities Laws XRP (Ripple) should be considered under Securities. SEC argued that XRP Qualifies as a Security, as it was an investment contract and ripple had control over its distribution and value.
Ripple and its officers, Brad Garlinghouse and Chris Larsen protested against SEC’s allegations, in which they told that XRP is not an security, while it is an digital currency similar to Bitcoin and Ethereum.They argued that XRP is an independent utility and it act as medium of exchange, not as a Security.
Why SEC vs. Ripple Case Is Important?
SEC vs Ripple is an very important case as result of this case will decide the future of cryptocurrency regulation in United states. The result of this case will decide whether ripple is an security?, which will definitely affect the other cryptocurrencies.
If SEC gets success in this case , it will be landmark for them and It will be difficult to raise funds for other cryptocurrencies. It will also restrict the innovations in the field of cryptocurrencies and it will be difficult for mainstream businesses to accept cryptocurrencies.
On the other hand, if ripple wins, there will clarification for cryptocurrencies regulations in united states and it will make easier for companies to do business in united states. As a result there will be increase in investment in cryptocurrency field and help Cryptocurrencies to come in mainstream business.
When Cryptocurrency Is Not a Security ?
Cryptocurrency is a security or not, it is a complex legal Question which depends on several factors.While there are some guidelines which helps us in deciding whether crypto is Security or not.
One Important factor is Howey Test, Which was developed by supreme court form case between W.J. Howey and US supreme Court. It Was told in Howey Test that an Investment contract is an security, when it fulfils the following four conditions:
- Investment of money.
- Investment is expected to give profit.
- Money is invested in common Enterprise.
- The profit is achieved only with others profit.
If any cryptocurrency fulfils all the four conditions then it will be considered as security. While some cryptocurrencies do not fulfil all four of them, these are not considered as securities.
For Example , Bitcoin is not considered as security as it does not fulfils the fourth condition of Howey Test. Bitcoin is not a normal Enterprise, as there is no centralised controlling authority. Instead, Bitcoin is decentralised network, which is controlled by users.
What Are Ripple and XRP?
Ripple and XRP are two different things and peoples are often confused between them:
- Ripple : Ripple is an company created Ripple Consensus Ledger (RCL), a blockchain based payment protocol. RCL was used between banks others financial institutions for fund transfer.
- XRP : XRP is an cryptocurrency which is built by Ripple. XRP was used for transaction payment on RCL, and can also used for trading on cryptocurrency Exchanges.
| Feature | Ripple | XRP |
| Name | Ripple | XRP |
| Type | Company | Cryptocurrency |
| Technology | Ripple Consensus Ledger | XRP Ledger |
| Purpose | Facilitate cross-border payments | Transfer value between parties |
| Ownership | Privately held | Publicly traded |
| Market capitalization | $15.7 billion (as of July 2023) | $2.8 billion (as of July 2023) |
Ripple Wins ?
Yes, Ripple has got an Partial Win over SEC. On Thursday 13 July, US District Judge Analisa Torres ruled that selling XRP on public exchanges is not a investment contract, and this is why it does not violate laws of Federal Securities. While the Judge also ruled that selling XRP to institutional investors is violation of Laws of Federal Securities .
It is large victory for XRP, as it is first time any cryptocurrency company has won case against SEC. It is also a win for entire Cryptocurrency Industry, as it clarifies the regulatory position of cryptocurrency.
SEC is thinking of whether to appeal or not against this verdict, While XRP is celebrating this partial Win. After this verdict the Price of XRP surged 70% up, and now XRP is 6th Largest cryptocurrency according to Market-cap.
it is important to note that it is partial win for Ripple. SEC still have a chance of appealing against this verdict. While this verdict is an large step for ripple in right Direction.
The SEC filed a motion to appeal the ruling that XRP transactions through exchanges did not violate securities laws.
On August 18,2023 SEC have filed an appeal against the Court Decision made. This decision was made by American District Court Judge Analisa Torres on July 13,2023, Torres Found that by Selling XRP on Public Exchanges they have not a Violated the securities laws.
SEC is appealing against the decision because they fees that the District judge has made several mistakes in her analysis. The SEC argues that the judge mistaken in her interpretation of the Howe test, which is used to analyse whether the stock is an security or not. The SEC also argues that the judge mistaken in her conclusion that Ripple did not engage in any marketing or promotional activities that would have made the XRP sale a security offering.
Hearing of SEC’s appeal is scheduled in the other Circuit’s American Appeal Court. There are high chances of result in the coming months.
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