So, it is all over the news that Ripple reached a long-awaited victory over the US Securities and Exchange Commission (SEC) in court on July 13, 2023. The crypto magazines were buzzing with excitement. But hold on! There is more to this story than the positive headlines suggest. Let's take a closer look at the dirty details that the optimists conveniently ignored and discover why it is too early to raise the victory flags.
A quick recap
The SEC sued Ripple back in December 2020, claiming that its token, XRP, was an unregistered security. Basically, the watchdog accused Ripple of illegal action.
The Ripple slap turned out to be a part of the former SEС chair Jay Clayton's farewell gesture towards the crypto industry before making way for Gary Gensler. Many hoped that Gensler, the new SEC commissioner, would resolve the Ripple vs. SEC battle. But he chose to support the Commission's anti-crypto stance.
Fast forward to July 2023, and we finally see a partial resolution to the conflict, but Gensler does not get any credit for it.
So, what did the court decide? They categorized XPR sales into three types:
- Institutional sales (targeting big investors like hedge funds).
- Program sales (selling XPR to private investors through crypto exchanges).
- Other forms of distribution (like giving XPR to project staff).
The judge ruled that institutional XRP sales were illegal. However, program sales and other forms of distribution were deemed lawful by the court.
But while optimistic members of the crypto community are opening their champagne bottles, the realists among them are looking further into the disputable details of the Ripple vs. SEC win. We have found out that there are at least five underlying cons that deserve our attention.
What's wrong with Ripple's victory
Ripple's victory is only partial
The judge ruled that $700 million worth of XRP investments made by big players violated US securities laws. In a nutshell, the court classified XPR as an unregistered investment contract. According to the court, XRP failed the Howey test, which means big investors expected profits from investments.
Anyway, the battle is far from over. The court still needs to determine who is responsible for the sale of digital assets and the violation of US laws. Ripple’s CEO, Brad Garlinghouse, and Executive Chairman, Chris Larsen, are heading for a jury trial.
The SEC might still appeal
Even Brad Garlinghouse himself admits that the SEC could appeal the court's decision. He knows that appeals can drag on for years, and in the end, the court might change its mind in favor of the SEC. So, Ripple's partial victory could easily turn into a complete defeat.
John Reed Stark, a former head of the SEC's Office of Internet Enforcement, believes the court's ruling could happen soon. He argues that XRP retail sales violate securities laws.
The SEC continues to choke the crypto market
The crypto community seems to think that the judge's decision in Ripple's case automatically clears any charges against other coins. But wait, the SEC is still putting pressure on the crypto market, and there are 68 cryptocurrencies on their list of illegally issued securities.
These tokens differ from XPR in many ways, so their issuers should not take Ripple's partial victory as their personal win.
No clarity on digital asset regulation
Despite everyone’s expectations, the SEC is not trying to clarify the steps for determining the legality of cryptocurrencies. The watchdog is still guided by the obsolete Howey test, which was invented in 1946.
No guarantee of Ripple’s recovery
The SEC has already done some damage to Ripple. While the rest of the crypto market was reaching new heights in the fall of 2021, XRP was stuck in the past and could not keep up with the rest of the top 10 cryptocurrencies.
XRP’s all-time high (ATH) remains the same — at $3.84, set on January 4, 2018. As of the time of writing, the coin is trading 80.88% below its ATH. Even with the recent positive news about the Ripple vs. SEC fight, it has only seen a 55% growth.
XRP chart. The vertical line is the growth in percentages amid the news about the victory to the current (7/17/2023) level.
In comparison, Bitcoin reached a new ATH on November 10, 2021, hitting $68,789. It is currently trading 56.1% below its ATH.
Comparison of the Bitcoin (colored curve) and XRP (orange curve) charts. Pay attention to the XRP peak at the beginning of 2018. Since then, the cryptocurrency has not updated the maximum. Bitcoin updated its ATH in November, 2021.
Given the circumstances, it is hard to buy into Garlinghouse’s confidence that a partial victory over the SEC will magically bring Ripple a lot of new partnerships in the banking sector.
The win is not real?
So, Ripple’s battle with the SEC is far from over, and the court’s decision isn’t a flawless victory it is made out to be. More showdowns lie ahead, and let’s not underestimate the power of the SEC appealing the court's decision.
Despite all the challenges Ripple faces, this case has demonstrated the incomparable unity of the crypto industry. The entire community supported the project in the battle against the SEC. Maybe, the principle of "one for all, all for one" will prevail, and Ripple will be able to save the digital asset market from the SEC’s clutches.
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