Ripple: XRP on the rise in a big way

The price of Ripple (XRP) has been rising sharply in recent days. 

In particular, it has risen from $0.32 on 16 September to over $0.53, which is a gain of 66% in seven days. 

What is really curious is that it had been more or less stationary below $0.4 since early June, which is more than three and a half months. 

The rise began on 18 September, although on the 19 it had briefly returned to $0.34, when news began to spread regarding a possible breakthrough in the court case involving the SEC against Ripple. 

The performance of Ripple and the XRP token

Ripple is a private company that created the cryptocurrency of the same name in 2012. 

Since it was a centralized project, over time they decided to decentralize the cryptocurrency as much as possible, changing its name to XRP. 

As of today, therefore, the cryptocurrency is called XRP, and it is not fully centralized, while the company that manages its ecosystem is obviously centralized and has kept the name Ripple. 

However, the lawsuit that the SEC filed against Ripple in late 2020 concerns precisely XRP, which was Ripple’s cryptocurrency when it was still called by the same name as the company. 

According to the latest news, the judge handling the lawsuit may soon rule in favor of one or the other litigant, and it is thanks to these rumors that the price of XRP has risen considerably. 

The SEC has decided to sue Ripple because it alleges that when the company put its cryptocurrency on the market, they offered it and pitched it to the market as an unregistered security. 

At that time, the cryptocurrency was still completely in the hands of the company, so much so that its very name was still Ripple, and apparently the company sold it as if it were a form of investment in the company itself. 

These kinds of investments are called “securities,” and US law (like that of many other countries) requires those who put a security on the market to have to seek and obtain approval from a special government agency. In the US, that agency is the Securities and Exchange Commission (SEC), and if securities are put on the market that are not registered with the SEC, an offense is committed. 

Therefore, everything revolves around the definition of the cryptocurrency XRP, but with a very important distinction. 

Ripple (XRP): security or utility token?

Indeed, one must consider that the current XRP cryptocurrency is decidedly different from the early Ripple cryptocurrency. The SEC claims that this cryptocurrency was initially a security, whereas now it may no longer be one. On the other hand, Ripple claims that it never was. 

Typically, a security is defined as a true investment contract, i.e. a contract tied to a cash investment in a company with a reasonable expectation of profits from the efforts of others. 

In other words, if a company offers the opportunity for third parties to make investments by promising gains from the company’s own activity, not the investor’s, this is an offer of an investment contract, i.e. a security. 

In the US, they have developed a special test, called the Howey test, to determine whether an investment falls within the definition of a security or not. 

Right now it would appear that XRP does not qualify as a security, because it is not sold as an investment contract that promises gains. It is a risky investment that may or may not produce gains, in some ways more like a bet than a security. 

The SEC, however, accuses the company Ripple of initially selling its namesake cryptocurrency as if it were an investment contract, promising investors that they would make money from the company’s own activities. 

The matter has now come before a judge, who will have to decide how to proceed. 

Never-ending Ripple-SEC lawsuit: nearing a conclusion?

It was initially thought that sooner or later it would come to a full-fledged trial, but the news that has been circulating in recent days suggests instead that the matter may be resolved sooner, perhaps directly by the judge herself. 

Indeed, after nearly two years of litigation, both the SEC and Ripple have simultaneously asked the judge for summary judgment, probably to try on the one hand to put an end, or at least a fixed point, to the lengthy court proceedings, but perhaps also precisely to avoid a trial. 

Four scenarios in particular seem to be possible at this point. 

The first scenario is that the judge decides to grant summary judgment in favor of Ripple, arguing that XRP should not be considered a security. 

The second scenario is for the judge to rule in favor of the SEC, with regard to the sale of the cryptocurrency Ripple in the market in its early days, but in favor of XRP with regard to the current nature of the cryptocurrency. 

The third is for it to rule in favor of the SEC treating both the old Ripple cryptocurrency and the “new” XRP as securities. 

The fourth is that it decides not to comment. 

It is possible that whatever decision it makes the crypto market may react by causing the price of XRP to move, even significantly and abruptly. 

It is worth mentioning that over the years, XRP has not actually been one of the most volatile cryptocurrencies, with a few exceptions. 

The price of XRP

The main exception was in late 2017 and early 2018, when it touched its all-time high at $3.4. This was a giant speculative bubble, which subsequently burst immediately and has never occurred again. 

The second exception was in the early months of 2021, when the price jumped from $0.2 to $1.8. However, this too was a speculative bubble that later deflated. 

Throughout the rest of the time, the price of XRP very often fluctuated between $0.1 and $0.4, until precisely 18 September. Now in fact it has exceeded $0.5. 

It is possible that this abnormal increase is due to some sort of bet by investors and speculators regarding a possible successful outcome of the judge’s ruling, and thus of the lawsuit against the SEC. 

However, it is not known what motivated investors and speculators to bet in Ripple’s favor, not least because the actual likelihood that among the four possible scenarios the first one will emerge is by no means clear. 

It is worth noting that even the second scenario may hurt the Ripple company rather than the XRP cryptocurrency, even though the company’s performance is very important to the good health of the cryptocurrency. It should not be forgotten that Ripple still holds about half of the existing XRP tokens.

However, the increase in recent days remains very significant, so much so that as pointed out by Santiment, the ratio of the price of XRP to that of BTC has just hit an annual high. 

🐳📈 The price ratio of $XRP/ $BTC has hit a one-year high of 0.000025 on the continued optimism of a potential settlement of #Ripple with the #SEC. Active shark & whale addresses holding 1m to 10m $XRP have been in an accumulation pattern since late 2020. https://t.co/z0E12cpn4G pic.twitter.com/dnmQZVxfvO

— Santiment (@santimentfeed) September 22, 2022

In addition, the active whale addresses of XRP appear to be still accumulating as of late 2020.

Market outlook

The crypto market seems convinced that Ripple will eventually win its case against the SEC, or at any rate that XRP will not be declared a security. However, it is not certain that the market will be right, not least because it still sounds strange that a US judge could prove a government agency wrong and a private company right. 

Many expect a ruling from the judge soon, but it is by no means certain that after nearly two years of hearing the judge will opt for a quick solution. 

What is certain is that in the coming days, or weeks, there may be further volatility in the price of XRP.