Ripple’s XRP digital token trampled by the SEC lawsuit
By: Faisal Khan
Tags: Finance, Business, Investing, Economics, Bitcoin

CRYPTO REGULATION

Ripple’s XRP digital token trampled by the SEC lawsuit

Third-largest crypto collapsed by more than 50% from recent highs, but this could have bigger implications for the Crypto industry

Can’t really say that this was not forthcoming from the data we analyzed earlier that related to XRP’s price movements at the peak of the recent boom a few weeks ago. In two of my earlier blogs, I highlighted the fact that investors/traders were booking their profit in XRP. The first one discussed how 3.5 billion XRP headed to exchanges to take advantage of a massive 114% price increase & the second one pointed to how the top 3 cryptos were behaving differently to the recent price gains.

One thing that very few people would have anticipated was that SEC would prove to be the catalyst that would exacerbate the price collapse in XRP. Only one day after Ripple announced that the U.S Securities and Exchange Commission intends to file a lawsuit against the company for the alleged sale of unlicensed securities, the latter sued Ripple Labs Inc. for violating investor-protection laws.

This tug of war between Ripple Inc. and the U.S SEC is nothing new and has been going on ever since CEO Brad Garlinghouse and cofounder Chris Larsen created 100 billion units of XRP in one fell swoop in 2012 for a company called Ripple Labs. The company still owns the lion’s share of XRP, with the bulk of its treasury held in reserve, to be sold in scheduled allotments.

Also, the two founders own a significant amount of the XRP tokens — leading some analysts to believe that this arrangement highlights a centralized corporation, which works against the whole narrative of decentralized cryptos. And this is perhaps one of the main reasons why the top U.S regulator has not declared Bitcoin & Ethereum (top two cryptos) as securities. Well, at least for now.

“It’s not just Grinch-worthy, it’s shocking, It’s an attack on the entire crypto industry and American innovation… I think we have to stand up for all of crypto — and not let the SEC bully the entire industry.” ~ Ripple CEO, Brad Garlinghouse

To their defense, Ripple is proclaiming that it does not have the discretion to tap the reserve funds as it wishes, and also it’s digital token becomes increasingly decentralized as banks and other merchants use it as a bridge currency in cross-border transactions. Garlinghouse blasted the SEC at this decision.

On the other hand, in the highest-profile SEC action against a cryptocurrency pioneer, the regulator charged Garlinghouse & Larsen with engaging in an illegal securities offering. According to the complaint, the SEC said the defendants had sold more than 14.6 billion XRP tokens since 2013 worth $1.38 billion in an unregistered offering. Mr. Garlinghouse personally sold XRP worth about $150 million and Mr. Larsen sold XRP worth $450 million, the suit says.

“Ripple created an information vacuum such that Ripple and the two insiders with the most control over it — Larsen and Garlinghouse — could sell XRP into a market that possessed only the information [the] defendants chose to share about Ripple and XRP. ” ~SEC Lawsuit

As expected, an immediate impact was seen in the price of the digital token XRP. Traders of XRP token were already booking their profits at the elevated price levels see recently (chart above), but the price just took a free fall in the last 48 hours after SEC’s decision to file a lawsuit against the company and its founders.