The world of cryptocurrency can be quite confusing, with various digital currencies like Bitcoin, Ethereum, and XRP, to name a few. Most people only know about Bitcoin, but they could be missing out on other innovative technologies. One of the most talked-about cryptocurrencies recently is XRP. However, XRP has been in the news due to a legal battle with the US Securities and Exchange Commission (SEC), which has stirred up a lot of controversy and uncertainty about the future of the digital asset. In this article, we'll provide you with everything you need to know about the XRP lawsuit and what it means for investors and cryptocurrency holders.
XRP is a cryptocurrency created by Ripple Labs. Ripple's goal with XRP is to provide a faster and more efficient way of transferring money globally. XRP is powered by blockchain technology and is designed to facilitate cross-border payments for financial institutions, banks, and corporations to help reduce transaction fees and processing times. Ripple is a privately-owned company, and XRP tokens are used to fund its ongoing operations.
Ripple is a California-based company that provides payment solutions to banks, financial institutions, and other companies. Ripple's technology is built on blockchain, which is a decentralized ledger that enables secure and transparent transactions. Ripple also developed its own cryptocurrency, called XRP, which is used to facilitate transactions on the Ripple network.
The “SEC,” or Securities and Exchange Commission, is a United States government agency that is responsible for regulating securities markets and protecting investors. In terms of crypto, the SEC has been actively involved in regulating cryptocurrency products and platforms that may be engaging in the sale and trading of securities. This is because some crypto assets may be considered securities under federal securities laws, depending on the facts and circumstances of each case. In summary, the SEC plays an important role in regulating the securities aspects of the cryptocurrency industry to protect investors and maintain orderly markets.
In December 2020, the SEC filed a lawsuit against Ripple Labs, its CEO Brad Garlinghouse, and co-founder Chris Larsen, alleging that they illegally raised $1.3 billion by conducting an unregistered securities offering. The SEC considers XRP as a security, like a stock or bond, rather than a cryptocurrency, which means Ripple violated US securities laws. The lawsuit led to a sharp decline in XRP's price, with investors hesitant at XRP’s longevity in the market.
The SEC's lawsuit has had a significant impact on the value of XRP. When the SEC announced its lawsuit in December 2020, the value of XRP plummeted. Many cryptocurrency exchanges and trading platforms delisted or suspended trading of XRP in response to the lawsuit.
Ripple has been adamant that XRP is not a security and has said it will fight the lawsuit in court. Ripple argues that XRP is a cryptocurrency and does not fall under the SEC's jurisdiction. Ripple has also pointed out that the SEC has not been clear about its regulatory framework for cryptocurrencies, which has caused confusion among market participants.
On July 13th, 2023, the District Court for the Southern District of New York, stated that the “offer and sale of XRP on digital asset exchanges did not amount to offers and sales of investment contracts.” Meaning the judge ruled in partial favor of the company as the XRP token is not a security, only regarding programmatic sales on digital asset exchanges.
However, the SEC managed to secure their own victory, as the judge ruled that XRP is a security when sold to institutional investors, as it met the conditions set in the Howey Test. Conditions referring to the U.S. Supreme Court case, SEC vs W.J. Howey Co., for determining whether a transaction qualifies as an "investment contract," and therefore would be considered a security and subject to disclosure and registration requirements.
Under the conditions of the Howey Test, an investment contract exists if there is any investment of money in a common enterprise with a reasonable expectation of profits to be derived from the efforts of others.
This case has been ongoing for three years, during which time it has been marked by dramatic developments such as the release of the "Hinman Documents" and Garlinghouse's continued defiance in the face of the SEC's accusations. However, within a matter of minutes after news broke about the verdict, the price of XRP saw a significant increase.
Following the Ripple vs SEC lawsuit, the recent developments in the case have been a mixed bag. On one hand, Ripple's recent win in court has been a positive development for the company and its supporters, as well as the greater crypto community. XRP is now relisted on Bitbuy and available for trading, as well as deposits and withdrawals. Learn more on how to buy XRP in Canada with Interac e-Transfer or Bank Wire transfer here. As always, it is important to do your own research and exercise caution when investing in any cryptocurrency (see XRP’s Crypto Asset Statement).