It's exciting times for Ripple's native token XRP (XRP 1.96%), as the team celebrates the end of over four years of legal battles. The SEC is dropping its charges against many players in the crypto industry, and Ripple's leadership says that includes XRP. As a result, Ripple's fans say XRP is going to the moon.
Let's dive into how it may unfold and why XRP's legal status isn't as clear-cut as it seems.
Without regurgitating years of legal back-and-forth, in 2020, the SEC brought charges against Ripple for selling unregistered securities. The question hinged on whether XRP -- and other cryptocurrencies -- should be traded as a security or a commodity.
In 2023, U.S. District Judge Analisa Torres made a split ruling, saying Ripple's sales to retail investors did not break the law. Following the decision, most big crypto exchanges relisted XRP for U.S. investors.
However, Judge Torres also said Ripple's direct sales to institutions constituted securities trading and had broken investment law. She fined Ripple $125 million. The court issued what's known as an "obey-the-law" injunction -- basically saying Ripple can't break the same law again.
The SEC appealed. Ripple counter-appealed. Now, Ripple says both sides will drop their appeals. The proposal is that the court drops the injunction, the SEC keeps $50 million of the fine, and returns the remaining $75 million to Ripple. The SEC has not yet made an announcement, and any deal would have to be approved by the court.
The SEC's case against Ripple had progressed a lot further than its charges against other crypto players. That makes it more difficult to simply drop them. Most notably, a judge has already ruled on the case. Former SEC attorney Marc Fagel posted on X that the court ruling against direct institutional sales still stands.
Ripple says the SEC will ask the court to remove its injunction. But it may not be so straightforward. The injunction says Ripple needs to follow the law. So unless the judge changes her ruling, which Fagel says is unlikely, lifting the injunction would still leave the same types of direct institutional sales in legal limbo.
It's a bit like two kids asking parents to intervene in a fight over a cookie they took from the cupboard. The parents say they shouldn't have had the cookie in the first place. The kids make up and agree to play nicely. But there's no guarantee the parents will give them back the contraband cookies.
Putting years of legal battles behind it is a good thing for Ripple, not least because it frees the organization up to focus on its main international payment and money transfer business. If it can shake the injunction, that could also make its core activities easier.
Will we see a step change in institutional sales, as many Ripple fans hope? It's complicated. Shifting legal tides may have an impact, but institutional investors have continued to buy XRP. The court ruling just changed how they did it. For example, a recent Coinbase survey showed that 34% of institutional investors already hold XRP.
Long term, the fact that XRP has weathered years in the regulatory cold speaks to its staying power. Ripple has real-world utility, which is more than can be said for many cryptos.
That said, when researching it as an investment, don't only think about how it compares to other cryptos. Look at how it stands up against payment processing companies like PayPal or Payoneer as well.
Ultimately, if you're hoping Ripple's price will soar in the short term on the back of significant institutional investment, it's unlikely. After gaining around 500% in three months, the recent news is pretty much priced in. Cryptos often suffer from "buy the rumor, sell the news," and the market's muted reaction to the end of the legal case is a good example.
The unwinding of the SEC-Ripple case is a great illustration of how hard it can be to find solid ground in these shifting regulatory tides. It's also demonstrative of the way market sentiment can drive prices, often in a speculative way.
Cryptocurrency is still a relatively new asset class, and that brings a lot of uncertainty. As with all crypto projects, ensure that only a small percentage of your portfolio is invested in what is still a high-risk asset.
Ultimately, the SEC is unlikely to pursue further action against Ripple. Equally, the judge is unlikely to walk back the ruling. It's more of a stalemate than a victory. For investors, the question is how much that might impact Ripple's business moving forward.
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