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The Ripple that Caused a Tidal Wave: What the Ripple vs SEC Verdict Means for Crypto Markets

21 Jul, 2023

The apparent victory for Ripple Labs and its Ripple (XRP) token in its much-publicised court case vs the United States Security and Exchange Commission (SEC) galvanised the cryptocurrency markets last week, boosting Bitcoin (BTC) past $31,000 and Ethereum (ETH) past $2,000. This was a result of a ruling on Thursday by Judge Analisa Torres of the US Southern District Court of New York that held that certain sales and distributions of XRP tokens by Ripple and its executives did not count as investment contracts and, therefore, do not break securities laws as the SEC has alleged in its lawsuit.

Of course, the biggest winner was XRP itself, which hit a peak of $0.93 before settling down and trading in the range of $0.71 to $0.85, roughly double its value at any point earlier this year. The popular altcoin even managed to move up the market cap rankings temporarily, gaining a stunning $21.2 billion to reach $46.1 billion, which placed XRP as the fourth-largest cryptocurrency by market cap.

The cryptocurrency market rose on the expectations of investors, which viewed the court ruling as the beginning of a more crypto-friendly regulatory environment in the United States. Prices have settled since the news as traders likely took profit from last week's surges, but XRP is still much stronger than before. Ripple Labs CEO Brad Garlinghouse tweeted that Ripple was "on the right side of the law and will be on the right side of history". On the face of it, the court ruling is a victory for the crypto industry, but some analysts remain cautious, noting that the judgement may not automatically apply to other tokens and that the SEC would continue to fight for its definition of cryptocurrencies as securities. The main sticking point concerns initial sales of XRP to institutional investors, something that still needs to be settled in court.

US lawmakers criticise the SEC, call for regulation, not enforcement

Does Ripple's win in court mean that the US will introduce pro-crypto legislation? The signs from the legislature are promising.

New York Rep. Ritchie Torres called on SEC Chair Gary Gensler to reconsider the regulator's attitude towards crypto following a "dreadful day in court". In a letter, Torres advised the SEC to focus on the "bonafide bad actors" instead of "indiscriminately" going after the majority of crypto assets as unregistered securities.

"Under Chair Gensler, the SEC has not issued a single rule on crypto assets, nor has it given any clear guidance," said Torres. "All it has done is sent mixed messages…not only contradicting the CFTC but often contradicting itself".

On 19 July, Representatives French Hill and Dusty Johnson, two chairs of different subcommittees in the House Financial Services Committee and House Agriculture Committee that examine digital assets, wrote a letter to SEC chair Gary Gensler, encouraging constructive legislation regarding digital assets rather than the SEC's current drive to "regulate by enforcement".

"Legislation would do far more to prevent future collapses of digital asset firms than enforcement actions," said the letter. "A statutory framework would establish a process for firms to come into the regulatory parameter and comply with consumer protections, rather than relying on enforcement actions to punish a bad actor after the damage has already been done".

These lawmakers join a growing chorus of US representatives that have criticised the SEC's heavy-handed methods. Furthermore, the US House Financial Services Committee is considering a draft bill designed to clarify the roles the SEC and Commodity Futures Trading Commission should play when it comes to crypto regulation. Although the bill has yet to be officially introduced, the committee is gathering feedback from lawmakers and industry leaders in the crypto and finance world.

XRP Futures reach highest open interest level for 2023

Open interest (essentially, the number of unsettled futures contracts) on XRP-tracked futures rose 21% in 24 hours, climbing above $1.1 billion on Wednesday, beating last week's level of $1 billion and setting a record high for 2023.

Open interest is used as an indicator in the stock market to gauge interest in a particular asset. Basically, a higher open interest shows an influx of new money into the market as more people are betting on the asset. Analysts typically note this as a sign that a current trend will continue and, in this case, a positive signal for XRP's future.

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