A recent article in The National Law Review noted regarding SEC v. Ripple Labs that “the SEC’s case rests on the proposition that XRP is a security — if it is not, the SEC lacks jurisdiction,” while Payne told Cointelegraph: “There are a handful of district court rulings that specific digital assets are securities: Telegram, Kik, ATBCoin, etc.” Those cases have provided important precedents that the SEC relies on now to police new token issuances that it believes are securities offerings. Continued Payne:
“But Ripple is a different kind of case. XRP was first sold over eight years ago, and over that time, the XRP ledger has become decentralized, while Ripple has, in large part, decoupled from XRP. But the SEC is alleging that XRP was and remains a security.”
John Wagster, an attorney at Frost Brown Todd, informed Cointelegraph that like almost every SEC action in the cryptocurrency space, the claims against Ripple “will be analyzed by market participants looking for a pathway to compliant token offerings,” adding: “A healthy market needs regulatory consistency, and the most meaningful outcome of the Ripple enforcement action would be one that provides a clear path forward for future issuances.”
Yuliya Guseva, professor of law at Rutgers Law School, told Cointelegraph that “the Ripple case is exceptionally important.” Even though it resembles the Kik and Telegram cases, the facts in SEC v. Ripple Labs are different. “The outcome of Ripple may have a profound effect on the crypto market. For one, the ultimate decision should provide more clarity to the developers and crypto community.” She added:
“The decision may reveal if we have transitioned from the bygone era of ICOs and related enforcement to a more mature market phase with a more nuanced doctrinal approach to cryptocurrencies.”
Regarding the discovery ruling, Chase is interested to see the SEC’s internal discussions about XRP and cryptocurrencies among the trove of documents now expected to emerge. “It usually runs just one way” — i.e., companies delivering their documents to the court. But in this case, it is the SEC that has to produce the goods — not a “typical” turn of events for the agency, suggested Chase.
What is propelling XRP price upward?
But what is one to make of the run-up in XRP’s market price in the past year — even before the discovery rulings. “XRP price’s journey to $1 this year has been nothing short of spectacular, considering the ongoing Securities and Exchange Commission lawsuit against Ripple initiated in December 2020,” commented Cointelegraph Markets contributor Marcel Pechman. In the weekend following the pre-trial rulings, XRP added over 40%, standing at around $1.3 on April 18, while almost reaching the $2 mark on April 14.
Wagster told Cointelegraph that the increase in XRP’s market price over the past year has more to do with bullishness in crypto markets generally rather than anything specific to XRP, while Chase opined: “Maybe what we’re seeing is the free market in operation.” The SEC’s lawsuit “is just another data point to be taken into account” in an evaluation of XRP; investors could even be handicapping an eventual settlement with the agency.
There may be another interpretation: Maybe the SEC’s decisions just don’t matter that much anymore when it comes to globally traded cryptocurrencies. Goforth disagrees. The SEC still plays a large role in regulating U.S. exchanges and other businesses, she said, while Payne noted that “if a cryptocurrency has a touchpoint within the U.S., the SEC has an argument that it can assert jurisdiction.”
Related: You don’t own me: XRP price surge defies SEC’s clamp-down on crypto
He did allow, however, “that XRP is traded worldwide, where many purchasers may be unaware of the SEC’s case,” which may have something to do with XRP’s price resilience. The price may also be affected by “purchasers who are betting that Ripple will win [the SEC case] and are trying to buy low.”
The U.S. Supreme Court provided the framework to determine whether an asset is a security in SEC v. Howey Co. “The Court explained that an asset is a security if it represents an investment in a common enterprise with the expectation of profits derived solely from the efforts of others,” recounted The National Law Review. The SEC has been applying the 71-year-old Howey Test ever since, and in its Ripple Labs complaint, the agency said XRP should be considered a security — explained the journal — because: