Why is Ripple(XRP) pumping today ?

Ripple, the company behind the XRP cryptocurrency, has recently won a landmark case against the US Securities and Exchange Commission (SEC), which accused it of selling unregistered securities. The judge ruled that XRP is not a security, but a digital asset that can be used for cross-border payments and other purposes. The lawsuit, which began in 2020, accused Ripple of violating US securities laws by selling XRP without registering it as a security. This decision has significant implications for the future of XRP and the crypto industry as a whole as SEC has also sued Coinbase and Binance for selling unregistered securities.

What is XRP and why did the SEC sue Ripple?

XRP is a digital asset that runs on the Ripple network, which is designed to facilitate fast and low-cost cross-border payments. Unlike Bitcoin or Ethereum, which are mined by decentralized networks of computers, XRP is pre-mined and distributed by Ripple to various entities, including institutional investors, crypto exchanges, and developers.

The SEC claimed that XRP was a security, meaning that it represented an investment contract or a share in Ripple’s profits. The agency argued that Ripple sold XRP to raise funds for its operations and to finance its projects, and that XRP holders relied on Ripple’s efforts to increase the value of their tokens. Therefore, the SEC alleged that Ripple should have registered XRP as a security and disclosed relevant information to investors, such as its financial statements, risks, and business plans.

Ripple denied that XRP was a security, arguing that it was a utility token that served as a medium of exchange on its network. The company claimed that XRP was independent of Ripple’s activities and that it had no control over the price or supply of the token. Ripple also asserted that XRP had numerous use cases beyond its network, such as remittances, gaming, e-commerce, and micropayments.

How did the judge rule and what were the main arguments?

On July 13, 2023, US District Judge Analisa Torres ruled in favor of Ripple and dismissed the SEC’s claims. The judge found that XRP was not a security on its face, meaning that it did not meet the criteria of the so-called Howey test, which is used to determine whether an asset is an investment contract. The Howey test consists of four elements:

Howey-Test

  • There must be an investment of money
  • In a common enterprise
  • With an expectation of profits
  • Predominantly from the efforts of others

The judge concluded that while Ripple did sell XRP to institutional investors in exchange for money, there was no common enterprise between Ripple and XRP holders, as they did not share profits or losses. The judge also determined that there was no expectation of profits from Ripple’s efforts, as XRP holders did not receive dividends, voting rights, or any other benefits from owning the token. Moreover, the judge noted that XRP had intrinsic value and utility beyond Ripple’s network, and that its price was influenced by various market factors, not by Ripple’s actions.

The judge also distinguished between two types of XRP buyers: institutional investors and programmatic investors. The former were those who bought XRP directly from Ripple through private placements or agreements, while the latter were those who bought XRP on crypto exchanges or other platforms. The judge ruled that only institutional investors could potentially claim that XRP was a security when they purchased it from Ripple, as they were more likely to be aware of its characteristics and risks. However, programmatic investors could not make such a claim, as they were less informed and more influenced by market forces.

What are the implications of the ruling for XRP?

One of the immediate effects of Ripple’s victory was a sharp increase in XRP’s price and market capitalization. According to CoinMarketCap, XRP rose by over 50% in the past week, reaching a high of $0.96 on July 14. It also surpassed BNB to become the fourth-largest cryptocurrency by market cap, with market cap above $40 billion at the time of writing this article.

The ruling is widely seen as a major win for Ripple and the crypto industry at large, as it provides clarity and certainty on how XRP and other similar tokens may be regulated in the US. The ruling also sets a precedent for other crypto projects that may face similar lawsuits from the SEC or other regulators in the future.

Some of the possible implications of the ruling are:

  • XRP can resume trading on US-based crypto exchanges that delisted or suspended it after the lawsuit was filed. This could boost the liquidity and adoption of XRP as a global payment solution. Leading exchanges like Coinbase, Kraken, Gemini, Bitstamp and others have started re-listing XRP.
  • Ripple can continue to develop its network and expand its partnerships with banks, financial institutions, and other entities that use XRP for cross-border transactions.
  • Other crypto projects that have pre-mined or distributed tokens to investors or users can argue that their tokens are not securities if they meet the criteria established by the judge. This could reduce the regulatory burden and uncertainty for many crypto startups and innovators.
  • The SEC may have to revise its approach and strategy for regulating the crypto space, as it may face more challenges and resistance from the industry and the courts. The agency may have to adopt a more nuanced and flexible framework that recognizes the diversity and innovation of crypto assets, rather than applying a one-size-fits-all rule.

XRP’s Adoption Growth

Another effect of Ripple’s victory was an acceleration in XRP’s adoption and use cases across various sectors and regions. Some of the examples include:

  • The expansion of RippleNet, Ripple’s global payment network that leverages XRP as a bridge currency to facilitate fast and low-cost cross-border transactions. RippleNet currently has over 300 customers, including banks, payment providers, remittance companies, and fintech firms, in more than 40 countries.
  • The launch of On-Demand Liquidity (ODL), Ripple’s service that uses XRP to source liquidity on demand for cross-border payments, eliminating the need for pre-funding accounts in foreign currencies. ODL is currently available in six corridors: US-Mexico, US-Philippines, Australia-Philippines, Australia-US, UK-Europe, and Europe-US.
  • The development of new use cases for XRP beyond payments, such as decentralized finance (DeFi), non-fungible tokens (NFTs), gaming, and smart contracts. For instance, Flare Network, a blockchain platform that integrates Ethereum’s smart contract functionality with XRP’s settlement layer, is expected to launch soon and distribute its native token Spark (FLR) to eligible XRP holders.
  • The growth of the XRP community and ecosystem, which consists of millions of users, developers, investors, advocates, and enthusiasts who support and contribute to the development and adoption of XRP. The community also organizes events, campaigns, initiatives, and projects to promote XRP and its benefits to the wider public.

Overall, Ripple’s victory against SEC is a huge win for XRP and the crypto industry as a whole. It not only validates XRP’s status as a legitimate digital asset that can be used for various purposes but also opens up new opportunities and possibilities for its growth and adoption. With its strong fundamentals, innovative solutions, and vibrant community, XRP is poised to become one of the leading cryptocurrencies in the world.

Also checkout our article on Why Vitalik Buterin is not comfortable in staking his entire ETH.

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