One hundred million versus the SEC. Why the price of XRP is rising
How the successful outcome of the lawsuit between Ripple Labs and US regulators could affect the rate of the cryptocurrency
The price of the native token of the Ripple payment protocol (XRP) has risen more than 60% in the past week. As of September 26, the asset is trading at $0,47. The rise has been attributed to the likely dismissal of a US Securities and Exchange Commission (SEC) court case against Ripple Labs over the recognition of XRP as a security. On September 18, the company filed a motion for an immediate ruling in the case against Ripple Labs alleging a violation of US law.
Both Ripple Labs and the SEC are waiting for the judges to issue an immediate ruling. The company will either be found guilty of violating securities law or dismiss the regulator's lawsuit, thus ending a years-long legal battle. In 2020, the SEC filed a lawsuit against Ripple Labs, its CEO Brad Garlinghouse and Chairman Chris Larsen. The commission considers the $1,3 billion raised by the company through the sale of XRP tokens to be unregistered securities transactions, a blatant violation of US law.
According to Nikita Vassev, founder of TerraCrypto, the rise in the price of XRP is primarily due to the inflow of capital from institutional investors who have already earned on the growth of Ethereum (ETH) in the run-up to the cryptocurrency's transition to the Proof-of-Stake (PoS) algorithm and received additional income from the ETHW fork accrued to them. “Now they are looking for new assets with short-term growth potential. Ripple has this potential due to the positive signals of a successful outcome of a lawsuit with the SEC soon,” the expert comments.
In a September 22 interview with CoinDesk TV, Ripple Labs General Counsel Stuart Alderoty said that the company feels “confident” and that it sees “the beginning of the end” in the protracted case. He said it is not accused of fraud, misleading investors, or manipulation, and the case itself is nothing more than a “technical issue” that will be resolved by a judge.
Ripple Labs' lawyers have a good chance of winning the case completely, or at least partially, Vassev believes. The regulator has failed to prove that the team promised investors high profitability when buying XRP. “There are no agreements, nor are there any statements from investors that such promises were specifically from the team. The actual defense strategy is obvious: they are trying to take XRP out of the SEC's jurisdiction,” commented the head of TerraCrypto. In this case, the expert considers it positive that Ripple Labs, despite years of legal action against the “monster of the financial market” such as the SEC, has not lost the partnership with major financial institutions.
According to Garlinghouse, the proceedings with the SEC will cost a nine-figure dollar sum. Speaking at Messari's Mainnet conference last week, the head of Ripple Labs said his company essentially represents the entire crypto industry in opposition to the main regulator.
“Now I do think the SEC has been a bit of a bully in the whole industry. We will spend – and I’ve publicly already shared this – well into the over $100 million defending ourselves against the SEC. And there are not a lot of projects that can actually afford. I mean the companies that can afford to do that, it’s not a long list. And so I do think it’s not just important for Ripple, it’s important for the industry that somebody kind of stand up to this,” Brad Garlinghouse, CEO of Ripple Labs.
Garlinghouse added that it is unreasonable to set a precedent where SEC Chairman Gary Gensler can arbitrarily declare any digital asset an unregistered security. “This is a federal government agency that works for us. It’s part of the government, we should feel outraged, like the idea that now everything under Gary Gensler’s view is a security is crazy talk,” the head of Ripple Labs added during the speech.
Speaking to reporters at the same Mainnet conference, LBRY head Jeremy Kauffman also criticized the agency that fined his company in 2021 with the same charge as Ripple Labs. According to the SEC, the sale of LBRY Credits tokens during the 2017 ICO also failed to comply with securities laws. Kauffman believes that this approach could be applied to any crypto project if desired and that “the SEC has very much demonstrated that they are out to damage or destroy the cryptocurrency industry in the United States.”
If you want to invest in XRP, you should understand that the rate of the coin will largely depend on the court decision, Vassev said. “The planning horizon should be somewhere between three and four months at least, until the end of December 2022, because a new court hearing on the case will take place on December 9 and the parties can appeal until December 22,” the expert explains. Garlinghouse predicts that the case against his company will not go to trial before a jury because he believes the judge has enough evidence to reach a single verdict.
XRP is the native token of the XRP Ledger blockchain, which runs on the federated consensus algorithm. Unlike Proof-of-Work (PoW) or Proof-of-Stake (PoS) algorithms, Ripple network validators are known and chosen by the company because of their reputation. XRP is used to provide liquidity, acting as a bridge for international transfers, allowing them to be completed in seconds and times cheaper than traditional service solutions. XRP's price was as high as $3,5 at the peak of 2017. CEO Brad Garlinghouse owns a 6,3% stake in Ripple Labs and has an estimated net worth of $3,3 billion.
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