SEC filed a lawsuit Ripple about token sale as an unregistered security worth $1.3 billion. However, regardless of how this case is resolved in court, it will greatly damage this company and its XRP token price.
- Many major exchanges have already started deleting XRP and this trend is likely to continue.
- Court deliberations can last for months. In the meantime, the uncertainty surrounding xrp will weigh heavily on the project.
- The SEC is hitting Ripple hard, so the project’s development prospects don’t look bright.
With the SEC’s change of manager, Ripple may have a slight edge, given that its CEO has backed Joe Biden’s campaign. However, the risk is still very high and the project’s prospects do not look very bright.
Information of XRP at the time of writing
Ripple has always been in a state of controversy in the crypto ecosystem.
As one of the oldest projects in the crypto space, it won the hearts of many retail investors early on. The XRP (XRP Fans) army is huge and through that retail gain, the project holds the third spot by market capitalization on CoinMarketCap.
However, besides retail investors are satisfied with way awake While the project is developing and it is expected to release a few updates during this bull run, many crypto analysts are skeptical about its future. Something is wrong with the Ripple company and its XRP token.
On one side is Ripple Labs, which is a growing enterprise and a large number of institutional clients. On the one hand, the XRP token has little to do with what the company is doing.
For the most part, Ripple does not need XRP tokens for its services, and as a company, it has generated very little demand for XRP tokens during its eight years of operation.
Furthermore, trying to avoid legal troubles, the company has tried to distance itself from the XRP token. At the same time, it is selling XRP tokens to retail investors to fund its business.
Ripple had the idea to use the XRP token to find liquidity in cross-border transactions between major financial institutions. However, the company has struggled to find the approval of financial institutions for those who want to do so.
The actual use case for the token is to fund a company’s operations, which has created a protracted debate in and out of the crypto space as to whether XRP is a commodity or a security. .
This debate could drag on for another eight years, as Ripple successfully runs its business. However, with cryptocurrencies becoming more and more popular, regulators are starting to pay more attention.
Now, the company is facing regulatory troubles from the SEC and no matter how the situation plays out, it will have a long-term negative impact on Ripple Labs, XRP Ledger, and the XRP token.
On December 22, the SEC charged Ripple and two of its executives with conducting an unregistered securities offering worth $1.3 billion.
According to the SEC, “ Ripple, Larsen, and Garlinghouse failed to register and sell their billions of XRP to retail investors, which deprived both potential buyers and Ripple’s business in violation of fundamental measures. important to protect the robust public market system that has Yes from our long time. “
Ripple CEO Brad Garlinghouse has denied all these allegations. He claims that the SEC statements are incorrect and that other countries have recognized XRP as a currency.
But the Ripple CEO’s statements have not reassured XRP token holders, and the token is in free fall. Several major exchanges have either delisted XRP or suspended trading, including Coinbase, the largest marketplace for XRP tokens.
What future scenario for Ripple and XRP?
At this point for token holders, it doesn’t matter what the court decides. It may take many months for a final decision to be made. Until then, the token price will likely continue to rise again.
What is known for sure is that the lawsuit was brought during a “virtual preprocessor conference” on February 22, 2021. As a result, the uncertainty surrounding the XRP token could last for more than two months.
During this period, selling pressure is likely to only increase further. Many exchanges have begun suspending XRP trading.
Coinbase, Bittrex, Binance US, Bitstamp, OKCoin, Crypto.com all announced that they are suspending XRP trading. Many exchanges will likely follow the same path and there won’t be much value in holding XRP if there is nowhere else to trade. So the only logical option might be to sell.
Major investors have started dumping their tokens. Grayscale, the world’s largest digital asset manager, sold over 9 million XRP tokens this week, bringing its total position to 26.46 million XRP. The trend is likely to continue.
This situation will hurt Ripple as a company. While it operates worldwide and not just in the United States, a large portion of its funding comes from XRP token sales.
In 2019, Ripple made $23 million through the sale of its xCurrent and xVia software, but it raised $200 million by selling XRP to investors.
Without the ability to sell more tokens (until the case is resolved), the company will likely cut funding and grow its business further. Simply put, the project will likely be put on hold until there is more clarity from the regulators.
Going forward, there are two scenarios for how this case will be heard in court.
In the worst case, XRP will be declared a security, which would be a disaster for the XRP token. This token will be removed from most centralized exchanges and its price will be near the bottom. Even if Ripple Lab existed, the company would not be able to use the token as a security for cross-border transactions. In such a case, financial institutions would avoid letting XRP participate in any of their transactions for legal reasons.
In the best case scenario, Ripple wins the court and this nightmare for the company is over. The XRP army will start buying the token again and the price could quickly recover back to previous levels. Winning in court can be a great buying opportunity as retailers will likely rush to buy more XRP when its price is low.
That said, both of these scenarios are likely to happen in the medium-term future. In the short term, all forecasts are quite bleak for XRP.
From a legal perspective
Many of you here may be remembering the EOS case. In September 2019, the SEC ordered Block.one to pay a $24 million fine for providing its unregistered security token. However, this penalty is quite small as its ICO has raised as much as $4 billion.
But it’s important to understand that the EOS deal was announced after the fact. Although the EOS ERC-20 token was considered a security at the time, the token currently on the EOS mainnet is not a security. Furthermore, EOS conducted the sale before there was clarity from the SEC on securities regulation for crypto services.
According to Compound’s attorney, Jake Chervinsky, the now-announced legal troubles seem to suggest that the outlook for Ripple is even worse than that of Block.one. The SEC has been quite aggressive with this particular case.
“This is pretty bad for Ripple. It’s securities fraud. XRP is essentially useless as a security. Today’s alleged breach against Ripple is a killer shot. The punishment for individual executives is quite severe. The SEC has been very aggressive.
Currently, the case of Ripple looks like the case of Telegram, which had to abandon the blockchain project and return the money to its ICO investors.
But there is a significant difference between both these cases and XRP. Ripple’s President Chris Larsen and its CEO Brad Garlinghouse cheated and enriched themselves by selling XRP to investors.
According to the SEC complaint, Larsen and Garlinghouse allegedly,
“Staged illegal sales transactions and personally profited approximately $600 million from the sale of unregistered XRP company securities. Garlinghouse has done so while repeatedly touting that he has been stockpiling XRP ‘for a long time’, meaning he holds a very important position, while he does not disclose his XRP sales. me. The defendants continue to hold large amounts of XRP and — with no valid registration claims — and are still able to continue to monetize their XRP, using the obscurity of the information created. on the market for their own gain, posing significant risk to investors”.
However, given the amount of money Ripple Labs has raised so far, they are well prepared to fight the allegations. Things can even become political here.
SEC Chairman Jay Clayton is set to step down and there will be a change in leadership when the new administration takes over. The new US President Joe Biden will appoint a new person to run the agency.
Ripple CEO Brad Garlinghouse previously donated to Biden’s presidential campaign. The CEO also said in a public statement that he is prepared to see how the new management handles crypto regulations.
In any case, however, it looks like the overall resolution of the issues will take quite a while, and the ongoing uncertainty of XRP’s future will continue to destroy XRP and Ripple.
XPR . token rating scales
The new regulatory situation surrounding Ripple has forced us to re-evaluate the points we made previously.
We are downgrading XRP’s market opportunity from 8.0 down 5.0 . The company was unable to integrate XRP into its business. Given the current risks, the integration may never happen; This is one of the lowest scores for market opportunities we’ve ever offered.
We are also downgrading the development ecosystem from 7.5 down 4.0 . Recent SEC fees have significantly affected XRP’s ecosystem, and the token has been removed from many reputable exchanges. Regardless of the court’s final decision, it can take a long time to reach that decision. Until then, the ecosystem may begin to collapse. In the worst case, there will be no ecosystem.
Ripple’s token economics score is already low at 5.0 . We’ve lowered it even further 3.0. The company was unable to attract significant demand for XRP cross-border settlements, and currently due to SEC fees, the token is at a very high risk of being considered a security. Under such a ruling, it would be nearly impossible for the company to meaningfully use it for cross-border settlements.
We are also downgrading the token performance from 6.0 down 3.0 . We think the token price could fall further due to the continued sell-off and increasing selling pressure.
Overall, XRP is rated downgraded from B down EASY.
In the case of Ripple and XRP, there is only one path. Regardless of how the legal troubles are resolved, the situation will have a negative long-term impact on the overall project.
The best strategy for XRP investors is to sell the token now and wait and see how the case is resolved in court. If the company is able to secure its position on XRP, the token will immediately become a very good buy. Retail investors will rush to buy it and XRP will likely recover, generating high returns in just a few days.
However, so far, we think the probability of a pessimistic scenario for XRP and Ripple is much higher. Therefore, we have downgraded the project to EASY overall, which means we do not recommend investing in XRP.
Source: cryptobriefing’s simetri
See more: XRP Will Be “The Third Biggest Crash of All Time”
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