The price of XRP has been in downtrend for the last few days, after a lawsuit was filed against Ripple Lab Inc. by the US Securities and Exchange Commission (SEC), while other cryptocurrencies in the market bubbled with bullish rallies.
Earlier this week, the CEO of Ripple Labs Inc.,Brad Garlinghouse, took to his Twitter to announce the pending lawsuit against Ripple, co-founder Christian Larsen and himself, over the illegal sales of the XRP.
Ripple Labs Inc. and SEC have been in deadlock for years, over whether XRP is a security token that should be under the regulatory purview of the federal securities regulator. Despite Ripple Labs Inc. efforts to differentiate itself from XRP, the firm bags more than half of the token’s supply.
Several people in the crypto space like Chris Giancarlo, former chairman of the Commodity Futures Trading Commission, published a paper arguing that XRP is not a security token. While others also argue that XRP meets the Howey Test criteria which makes it a security token.
On Tuesday, the SEC charged Ripple to the Federal District Court in Manhattan. SEC is alleging that Ripple Labs Inc. and two of its executives, who are also significant security holders, raised over $1.3 billion through an unregistered, ongoing digital asset securities offering.
Since the announcement of the pending lawsuit by the CEO of Ripple Labs Inc., the market value of XRP fell significantly by 14%– dropping to its lowest value since November and cancelling about 177% of last month’s gains. This has resulted in several exchanges temporarily halting trading or delisting XRP.
According to reports in the crypto space, if XRP is deemed to be a security token by the Court, exchanges that have listed XRP are at risk, largely because XRP’s liquidity will gradually dry up, and its market value will crash hard. On binance alone, XRP fell by 41%, over the past three days, due to the news of the lawsuit.
Coin Center, a popular nonprofit advocacy and research group which supports the development of crypto-friendly policies, has said they will not be rendering any support to Ripple Labs Inc. in this legal battle with SEC. This was made clear by Jerry Brito, the executive director of Coin Center.
Yoshitaka Kitao, SBI Holdings CEO and Ripple Board member said via his Twitter handle that “Japan’s FSA has already made it clear that XRP is not a security. I am optimistic that Ripple will prevail in the final ruling in the US.” He further stated that “SBI Holdings remains a steadfast partner to Ripple, and looks forward to expanding together in Asia.”
The legal adviser of Ripple, Stuart Alderoty, also argued in the favour of Ripple, stating that the United States Government had already concluded in 2015, that XRP was a cryptocurrency. He further said that ” Last I checked, the SEC is still part of the US Government. Here’s the plus side – the industry will finally get the clarity it deserves. Goodbye “Howey test,” hello “Ripple test.”
Negative Effects on Crypto Space, If the SEC wins the lawsuit against Ripple Lab Inc.
The holders of XRP will be at huge loss, if XRP is declared a security token. Security tokens are not allowed to be traded via charts on crypto exchanges and as such, this will lead to a drop in its market value with zero or little liquidity.
Also, marketplaces that continue listing XRP are at great risk if the SEC wins the lawsuit. Those exchanges will have to face penalties for allowing retail consumers to trade an unregistered security token.
Large crypto companies might be considering exiting the U.S amid increasing frustration at the lack of SEC regulatory clarity. This might also lead to reduced adoption of cryptocurrency by the masses.