SEC does not kill the project- The Cryptonomist

Today the market value of XRP, or Ripple’s cryptocurrency, rose about 12%. 

In fact, yesterday, Judge Analisa Torres upheld Judge Sarah Netburn‘s earlier rulings in the SEC v. Ripple case, again ordering the SEC itself to produce documents that the agency refused to produce. 

This small partial victory for Ripple has thrown some optimism on XRP, which is back above $0.49. 

This current value is in line with what XRP had before the implosion of the Terra ecosystem in mid-May, so as of the second half of June, this is an excellent recovery, with +50% in the last two weeks. 

So in September, on the SEC case against Ripple, there has been a buildup of different optimism in favor of Ripple, and in particular about the fact that it might be difficult for the SEC to prove that XRP is a security. 

SEC seeks to bring down Ripple project

But extending the analysis to the entire period between the launch of this lawsuit in late 2020 and today, Kaiko’s Deep Dive discovered something exciting. 

In a lengthy article published yesterday, it is shown how the SEC in this time could make it more difficult for Americans to buy the token but has not demonstrated that it also can kill the project. 

The starting point is precisely the question regarding the legal nature of some cryptocurrencies, such as XRP, that is, whether, indeed, as the chairman of the U.S. Securities and Exchange Commission (SEC) claims, most cryptocurrencies are to be considered securities. 

In this sense, the case of XRP is illustrative because it has been going on for almost two years now without concluding that it should really be considered a security. 

In other words, if in two years the SEC has failed to prove before the law that it is, although the SEC itself is the U.S. government agency that oversees security markets, this seems to mean that the SEC does not have the power to destroy a project like XRP. 

The Kaiko team points out that this case is really illustrative, especially since the SEC will also launch similar initiatives against a large number of other cryptocurrency projects. 

The fact is that XRP seems really, for all intents and purposes, just the utility token of the cryptocurrency services offered by the Ripple company with its various tools. However, many holders consider it an investment for all intents and purposes. That’s why the SEC has accused Ripple of issuing a $1.3 billion unregistered securities offering in the market. 

However, while at first, the news of the lawsuit against Ripple caused the market price of XRP to drop significantly, over time, it has instead risen, so much so that it has now almost recovered all the losses it has accumulated since then. Indeed, the current price is more than double what XRP was at the beginning of November 2020. 

The neverending lawsuit

During this period, news about the development of the case has been at the center of XRP’s price movements and has significantly affected the derivatives market on this cryptocurrency. 

Kaiko says that traders still like to speculate on XRP, so much so that there seem to be a good number of traders who also have a good understanding of the U.S. legal system or who can keep up with the evolution of this court case. 

The greatest effects of the SEC’s lawsuit against Ripple, however, have occurred on XRP trading volumes. In particular, those in USD, stablecoin, and BTC have been reduced by 95%, while those in euros and Mexican pesos have paradoxically increased instead. Although these two pairs combined in August came to weigh only 10% of total XRP trading volumes, their growth is significant. 

Kaiko says that XRP, in particular, has found a good niche in Latin American markets, thanks to Ripple’s partnership with Bitso, one of the region’s largest exchanges. 

Comparing XRP’s liquidity in the cryptocurrency markets with that of other cryptocurrencies with similar market capitalizations shows that liquidity in USD and stablecoin to USD is no worse for XRP, as might be expected due to regulatory uncertainty. 

It should, however, be noted that during September, it increased significantly, as did trading volumes in spot markets and open interest in derivatives markets, and this would suggest that traders anticipate volatility.

In light of this analysis, the Kaiko team concludes that the SEC has only been able to hinder the dominance of the U.S. dollar as the main trading pair, allowing other currencies to gain market share. That’s true not only for XRP but also for other cryptocurrencies. 

The volume in USD remains dominant, but the volume in euros and Mexican pesos is increasing. So they conclude by saying that the SEC, for now, has done nothing more than making it a little more difficult for Americans to buy cryptocurrencies. 

What stands out the most in all this reasoning is that the SEC has had plenty of time to prove that XRP should be considered a security. Given that this is precisely the U.S. government agency that oversees the security market, it is hard to imagine that this means nothing. 

Indeed, at this point, the odds of the SEC failing in its attempt to prove that most cryptocurrencies should be considered security seem to be quite high. 

At least, that is what the markets seem to think, given the interesting recovery in the price of XRP in recent weeks. 

The price of Ripple (XRP)

It should, however, be remembered that the current price of XRP is still 85% lower than its all-time high in January 2018, and it is also lower than it was in late 2020 before the SEC lawsuit was announced, albeit by a small amount. 

Moreover, during the bull run of 2021, it failed to return to all-time highs, unlike almost all other major cryptocurrencies, probably precisely because of the impact on its market value of the ongoing court case. 

Add to this the fact that the SEC accuses Ripple of selling XRP as unregistered security in the past, several years ago. In other words, XRP may not be considered outright security, but the real problem may have been explicitly related to the company’s business policies in the past. 

Given that XRP-which was initially called Ripple after the company that created it-is a cryptocurrency that was not put on the market in a decentralized way at all, should it not be proven that it should be considered security from a legal point of view all the more reason a similar logic might apply to decentralized cryptocurrencies. Therefore from this point of view, the risk to other cryptocurrencies seems significantly lower. 

However, one should not consider the lawsuit closed or make the mistake of taking a Ripple victory for granted. As of today, a Ripple victory, or at least a defeat of the SEC in its attempt to prove that XRP is a commodity, seems a bit more likely than it seemed in late 2020.