After what looked set to be a promising end to 2020, XRP investors have been rocked by the news that the US Securities and Exchange Commission (SEC) is filed a lawsuit against Ripple – sending the price of its popular coin spiralling in the process.
The case is based around the early distribution of pre-minted XRP – the currency developed by Ripple – whether it constituted a securities offering and whether XRP stock should’ve been registered accordingly.
Critics of XRP argue that this is the case because the token was centrally controlled when it was initially developed and that Ripple still retains a heavy level of control over the cryptocurrency today.
With much of the crypto landscape built on decentralization, where few coins are created with the central control of a single entity, XRP had always been something of an outlier, and with the prospect of the SEC recognising the coin as a securities offering, Ripple could suffer a potentially fatal exodus of XRP investors.
As we can see from CoinGecko figures, the price of XRP has dropped significantly following the news of the SEC lawsuit – with a 36.1% collapse occurring in the space of 24 hours. The fall actually came off the back of what had been an impressive rally for the token, which saw XRP climb to two-year highs of over $0.60.
Despite the bad news, XRP currently remains the fourth largest coin in the crypto market based on its market capitalization, but the upcoming lawsuit may yet leave the popular coin as one of the most significant casualties in the short, but tumultuous, history of cryptocurrencies.
The Beginning of Delistings
Despite the SEC lawsuit still yet to take shape, three relatively small exchanges, OSL, Beaxy and CrossTower have either paused trading for XRP or removed the cryptocurrency altogether.
However, if the result of the lawsuit determines that XRP is a security, it could put all cryptocurrency exchanges that list the coin at risk – due to the fact that they would need to be a registered broker-dealer to offer securities for investment. Furthermore, the SEC claims that Ripple paid exchanges to list its coin:
“Ripple also entered into agreements with at least ten digital asset trading platforms — none of which were registered with the SEC in any capacity, and at least two of which have principal places of business in the United States — providing for listing and trading incentives with respect to XRP. Ripple paid these platforms a fee, typically in XRP, to permit the buying and selling of XRP on their systems and sometimes incentives for achieving volume metrics,” claims the SEC lawsuit.
Writing on Twitter, Hailey Lennon, partner at Anderson Kill Law and contributor to Forbes crypto, claimed that if XRP is ultimately considered a security, the 10 exchanges alleged by the SEC will be at the highest risk.
As fears over their association with a recognised securities offering could lead to significant legal trouble will begin to mount for exchanges, we may see further delistings taking place among larger platforms.
Should XRP be adjudged to be a security, the ramifications may be passed on to crypto exchanges. Although we may not know which 10 exchanges received payments to list XRP, it could be worth trusting one of the larger and more reputable exchanges of today with your trading to ensure that your service isn’t disrupted by the aftermath of the lawsuit.
Protecting The Future of XRP
To ensure the short-term stability of XRP, it was vital that the coin found support soon before a more widespread loss of investor confidence takes place. However, further exchange delistings caused a dip below $0.45 and caused the price to drop like a rock into the water.
If XRP investors are looking for some rays of light amidst the topsy-turvy news surrounding delistings and lawsuits, they may find comfort in knowing that Ripple’s whales – holders of over $1 million in XRP – are still trending upwards.
Despite there being signs of falling support, it seems clear that some of the larger investors are looking for an eventual return to the momentum XRP had been working towards prior to the SEC’s lawsuit.
Of course, XRP may find some support in the form of investors gambling on the coin surviving the lawsuit and regaining widespread confidence. The fact that XRP has grown to rank as the fourth biggest crypto asset in the market shows that it’s won plenty of support since its inception.
The upcoming lawsuit will be the biggest test that the coin has faced, but if Ripple can manage to survive, we may see a hearty return to form.
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