Ripple’s Partial Win: What It Means for The Crypto Space

A well-known San Francisco-based digital coin, Ripple (XRP) has recently reached a huge milestone in the cryptocurrency space. Following the lawsuit, The U.S. court ruled in favor of Ripple, which potentially, sets a new standard for other digital coins.

The Brief History of the Ripple Lawsuit

Initiated in December 2020, Ripple Labs were facing a lawsuit from the U.S. Securities and Exchange Commission, known as SEC, who claimed that the former sold XRP coins as an unregistered securities offering, selling them to investors in the USA and worldwide alike. 

As a result of the lawsuit, the price of the token plummeted on crypto exchanges, with Coinbase taking off the coin from their platform altogether. 

However, with the current resolution of the lawsuit, the course of the coin has changed drastically. As of July 13th, the court confirmed that Ripple Labs did not, in fact, violate federal securities law by launching its XRP token on public cryptocurrency exchanges. Following this decision, the price of the coin skyrocketed – yet, the impact of this legal event transcends the cost of XRP, impacting the entire industry tremendously. 

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The Security Dilemma

The main argument of Ripple Labs lay in the decentralized nature of the blockchain, upon which the XRP traded. This means that the company itself didn’t exert any control on their tokens, proving that they’re not a security. The majority of the token sales came from everyday people and small-scale investors. Therefore, only the ones that were directed to hedge funds and big investors can be qualified as a security offering.

That is to say, the court has declared that while institutional token sales violated the law, programmatic sales didn’t. Many have met this decision with skepticism and disapproval, asking “how can a thing be a security in one transaction, but not in another?” 

Regardless, the ruling has decided that the first sale of around $728.9 millions of XRP did qualify as a violation of federal securities law. After all, the company sold investment contracts, as the investors expected that they would generate profit from Ripple’s efforts. 

Yet, the ruling also claims that the average small-scale investor who may have received valuable cryptocurrency help on the basics of crypto investing didn’t expect to receive any profits from Ripple’s work.They may have simply signed up on a public cryptocurrency exchange and purchased the token – with no expectation to profit from the company’s performance. For this reason, the sales that were made to the Programmatic Buyer, which amounted to $757.6 million worth of XRP, were not categorized as a security offering. 

When it comes to Programmatic Sales, the court claims that Ripple’s sales represented “blind bid/ask transactions”, meaning that the buyers didn’t know whether their funds reached Ripple. It further equated the Programmatic Buyer to a secondary market purchaser, buying tokens anonymously via cryptocurrency exchanges. 

The Impact of the Ripple Lawsuit on the Cryptocurrency Space

Many experts see the Ripple resolution as a positive sign in the cryptocurrency space. Some, on the other hand, claim that it’s unsubstantiated and may not extend to the way the SEC approaches the entire industry. The security dilemma, that is, whether the regulatory status of coins qualifies as securities, still concerns many digital assets in the cryptocurrency space. 

Overall, Ripple has received two regulatory statuses for its tokens, which brings even more uncertainty, as to what constitutes a security offering. Experts refer to this phenomenon as “Schrodinger’s Shitcoin”, which assumes that a token qualifies as a security when sold to an institutional investor, however, it doesn’t if it’s sold under the pretense of anonymous investing. 

Truly, the course of the cryptocurrency industry is impossible to determine from the Ripple lawsuit alone, as Congress might change the direction of the lawsuit by reversing it upon appeal. Until then, the industry still struggles with a lack of proper frameworks, which would regulate tokens unanimously and eliminate the involvement of politically-involved the SEC. 

The Future of Cryptocurrency Regulations

Whether tokens are considered a commodity or a security has bothered investors for a long time. However, the current state of cryptocurrency regulations don’t provide a full picture on whether this concern will resolve itself. 

Since there still is a possibility for the decision to get nullified, it’s unclear whether the market should rely on this decision. However, both investors and experts hope that regulations will become more loose, meaning that the cryptocurrency space in the United States will operate upon a laissez-faire model – a liberal regulatory approach that the UK has already adopted. 

Conclusion

Following the Ripple lawsuit, the dilemma on whether cryptocurrencies should be categorized as a commodity or a security still remains an enigma. The financial regulators in the U.S. still can’t come to a unanimous decision, as they can’t agree on whether crypto is a security (similar to stocks and bonds) or a commodity (similar to raw materials or other goods). 

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One way or another, the emergence of regulations is inevitable, and Ripple’s favorable ruling might even be ephemeral. While it’s still unclear what the Congress will decide on the lawsuit, cryptocurrencies still remain a peculiar form of investing, where the public is always skeptical about the future of digital assets, whether it’s their use cases or legitimacy. 

Crypto Adventure

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