Here’s how it all started:
About four months ago, the securities regulatory arm of the US sued Ripple Labs on the count of three charges:
⮚ ‘Raising capital to the tune of $1.3 billion via a secret sale of large undocumented digital currencies to customers. This had gone on for over eight years.’
⮚ ‘Allegedly issuing an undisclosed amount of XRP as a means of payment for services of labor and other promotional activities without due documentation.’
⮚ ‘An additional private covert sale by the company’s founders, Bradley Garlinghouse and Christian Larsen, to the tune of $0.6 billion.’
Going by these allegations, Ripple may have ventured to bypass the US-SEC stipulated laws as enshrined in the 1933 Securities Act, which binds and bans all form public capital-raising transactions done on US soil without proper documentation and notification to the exchange platform. The SEC may well aim to set this as a precedent and serve as a deterrent to others.
What’s the fate of the ‘Others’?
While the others in the above context encompass all stakeholders and investors within the crypto market and its global ecosystem whose operations may likely be affected by whatever is the outcome of the case; the real ‘others’ in this case holds an entirely different meaning.
Speaking of ‘Others’, the lawsuit appears to have just gotten messier with well over 10,000 XRP holders now seeking to become a part of the lawsuit to fight for the preservation of their assets. These aggrieved Ripplers deem the actions of the SEC, – legally correct or otherwise – to be insensitive to the financial plights of the thousands of people who have already purchased and transact business with XRP as an exchange commodity and a digital asset.
…But is XRP a Digital Asset?
At the heart of the tussle between Ripple and SEC is this question of whether XRP classifies as a digital asset? Well, Yes and No. According to the description by Ripple and the perception of the army of investors, traders, and hodlers, XRP is just an asset or a commodity and as such, is not bound to be subject to the rules and regulations of securities as stipulated by the SEC.
On the contrary, the SEC thinks otherwise and rather chooses to view the alleged violative transactions made by the company in the light of the US, 1946 Howey test for determining securities. This outlines the definition of a security as any type of contract for investment where sums of money are given by members of the public who in this case, are investors, in the expectation of profit through the help of others in an enterprise.
For the cryptocurrency industry, the core idea of decentralization has made many coins immune to the SEC laws. Only those who offer some form of regulation through means like coin burning or centralized maintenance as part of their operations are susceptible to SEC’s regulations. This provision, if eventually proven by the court, is sufficient to drag Ripple into the net of violations.
The Role of the SEC in today’s crypto-market
However the situation is looked at, the role of the SEC generally in the cryptocurrency exchange market is key. Seeing the unbridled frenzy that currently rocks the crypto-space, it is not far-fetched to see buyers throng to the booth of buzzing cryptocurrency security or asset to throw in their hard-earned dollars without knowledge of the issuing company’s basic investment information such as financial health, criminal records, capital base, and trustworthy ratings.
The provision of this background detail is the duty of the SEC, to protect investors and prevent another large-scale Ponzi scheme like One Coin.
The end of relevance still far for XRP
Currently standing strong with a market cap of over $55 billion as the fourth most valuable digital currency, over 60% of its value has so far been lost and doubly regained since the XRP’s legal entanglement.
Many platforms and partners like MoneyGram and Coinbase have gone on to discontinue transactions with the coin on their platform. This means that the strength of the digital asset has since shifted from the US and Europe and is now largely stemming from its growing user base in Asia who remains unfazed by US legal kerfuffle.
The next major decider date for the advancement of the case would be by August and Ripple hopes the new SEC chairman, Gary Gensler – who doubles as an MIT blockchain professor would have settled in well enough to free the company of the current legal shackles.