An SEC Victory in Ripple Case Would Render XRP ‘Untradeable,’ Market Pros Say

UPDATE (December 22, 10:45 PM UTC): Shortly after this article was published, the SEC officially filed its lawsuit.
The market for XRP could dry up quickly and cause prices to suffer if the US Securities and Exchange Commission prevails in an anticipated lawsuit against Ripple Inc., analysts and traders said.
Brad Garlinghouse, Ripple's chief executive officer, warned on Monday that the SEC could file a lawsuit against his company in the near future for selling XRP, the third largest cryptocurrency by market capitalization. Following the news, the price of XRP fell sharply, losing up to 14% before rebounding slightly.
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While the case has not yet been filed and it could take years to resolve, some market experts warn that if the SEC proves in court that XRP is a security when all others are equal, the cryptocurrency could end up without a fair market . This is because most crypto trading venues are not currently licensed to trade securities.
"Many cryptocurrency exchanges would be forced to delist them in order for liquidity to run dry," said Ryan Watkins, research analyst at Messari. The price of XRP would "crash hard" in this scenario, he said.
Exchanges that still list XRP run the risk of being asked by the SEC to register as stock exchanges if the commission wins its lawsuit. Otherwise, penalties could be imposed on these exchanges for allowing retail customers to trade in an unregistered security.
CrossTower, a small exchange that opened in June, has already delisted the cryptocurrency.
Related: SEC Sues Ripple Over 7 Years, $ 1.3 Billion "Ongoing" XRP Sale
"CrossTower's Listing Committee rates tokens in multiple dimensions," said Kristin Boggiano, the company's president. “One of the criteria is whether an asset is a security. Given the uncertainty surrounding the status of XRP, CrossTower has decided to delist XRP. "
While CrossTower is a small operation when compared to Coinbase or Binance, its reflections could anticipate how these larger trading platforms view XRP.
CrossTower is a member of the Coinbase-led Crypto Rating Council, an organization that was founded last year to provide clarity on which digital assets could resemble securities. The project assessed that XRP is more like a security than a non-security and gives the asset a rating of 4 out of 5 (where 5 is a clear security). The results do not serve as legal advice, but rather reflect the views of the member exchanges on certain digital assets. In addition to CrossTower, Bittrex and Kraken are members of the group.
Coinbase, Bitstamp and Binance US declined to comment. Kraken did not respond to a request for comment at press time.
Short, medium and long term
To be clear, delisting would be a medium-term risk for XRP, but it's far from an accomplished fact.
“The chances that XRP will be delisted due to the low SEC developments. The news is short-term noise in my opinion as far as price goes, ”said trader and analyst Alex Kruger. “I think it should be below par for a while. Market participants are very concerned about the XRP-SEC news and potential delisting, and we have seen many top buyers. "
However, John Willock, CEO of Tritum, a diversified crypto services company, said that if XRP were classified as a security, “it would very likely make the asset untradeable for most exchanges and industry participants. The instant disappearance of a massive chunk of market liquidity and participants would cause the asset to plummet in price. "
Among current crypto investors, "very few people would want to get a grip on and deal with the costs and complexities of owning and interacting with a security tool," added Willock.
Jay Hao, CEO of Malta-based Crypto Exchange OKEx, agreed with this assessment.
"It is likely that XRP will sell out heavily, which will lead to a drop in prices," he told CoinDesk. Hao didn't respond to a follow-up question by the time we went to press about whether its exchange would delist XRP if it were classified as collateral.
While institutional investors have dipped their toes in the crypto pond lately, these big players are generally focused on bitcoin and ether. According to experts who spoke to CoinDesk, the part of the crypto market that includes XRP is still dominated by individual investors. If the exchanges no longer support XRP, retail investors would have no way of trading with it.
Silver lining?
Even so, the damage to XRP wouldn't necessarily be fatal.
"There are several ways the SEC can grant special operating conditions or accept payment of a settlement from Ripple that could dampen the blow," Willock said.
Hao also said that declaring XRP as collateral could potentially have a positive impact on the value of the cryptocurrency across the board.
"That call could eventually allow Ripple to list on traditional exchanges and potentially open them up to a far broader market, which means there could be extremely positive price movements over the long term," Hao said.
XRP was developed and launched in 2012 by the co-founders of Ripple Labs, Arthur Britto and Jed McCaleb, and tech expert David Schwartz, who donated a large part of the token to the startup. According to Messari, the company has since sold around $ 1.2 billion in XRP.
Ripple, which has long insisted it doesn't create and control XRP, didn't respond to a request for comment at press time. In an appearance on CNBC Tuesday, Garlinghouse called the SEC's position on XRP "one foot outside the door".
"No other country has viewed XRP as a security," he said. "There were countries like the UK, Japan, Switzerland and Singapore that came out and said things that made it clear that XRP is a currency."
Garlinghouse also told viewers that the token's fate was independent of that of his company.
"If Ripple didn't exist, XRP would still thrive around the globe with ... a few hundred exchanges around the world," he said. "And there are over 100 different projects, innovative entrepreneurs here in the US and around the world, building on XRP."
Lawrence Lewittin, Nathan DiCamillo and Danny Nelson contributed to the coverage.
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A SEC victory in the Ripple case would make XRP "unwieldy", say market professionals
A SEC victory in the Ripple case would make XRP "unwieldy", say market professionals
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