The U.S. Securities and Exchange Commission (SEC) vs. Ripple (XRP) ruling isn't all diamonds and roses like the market's reaction might have you believe.
The price of XRP doubled to $0.80 in the 48 hours after the court ruled last Friday that XRP did not sell unregistered securities to investors, rejecting the SEC's claims. However, if you actually read the decision, you see this isn't the clear-cut victory that the market makes it out to be.
It's true the court ruled that Ripple Labs and XRP's founders did not sell unregistered securities to the general public.
However, the same didn't hold true for XRP sales to institutional investors, which the court ruled did involve unregistered securities. So, what really happened was Ripple Labs, the company, lost the case, while the XRP token won. It's ironic, considering the former worked hard to distance themselves from the token yet are now claiming victory.
The ruling also implies a hefty fine for Ripple that will likely cost hundreds of millions of dollars. My bet is that they'll attempt to cover this by selling more XRP tokens, which wouldn't bode well for investors hopping on the bandwagon now. Especially since the settlement might prevent them from doing so and could require the tokens be locked up by a neutral third party or foundation.
So, what does this mean for you, the investor? To me, it's obvious: don't buy equity in Ripple, and don't add any more XRP. Because if this ruling tells us anything concrete, the company's legal troubles are far from over...
A Brief History of the SEC vs. Ripple
The SEC filed a lawsuit against Ripple Labs in December 2020, alleging that the company had raised over $1.3 billion in unregistered securities by selling XRP tokens. Ripple Labs, however, maintained that XRP is a currency, not a security, and therefore not subject to securities laws. The recent ruling, while a partial victory for Ripple, has only added to the situation's complexity.
The Potential Impact of the Decision on the Cryptocurrency Market
The entire cryptocurrency market closely watched the Ripple vs. SEC case because it could have set a precedent for how cryptocurrencies are regulated moving forward, including future rulings in the SEC's ongoing crypto crackdown.
A clear-cut victory for Ripple could have potentially paved the way for more lenient regulations and increased adoption of cryptocurrencies, but the mixed ruling has left the market in a state of uncertainty.
Why the Decision Adds More Confusion to the Crypto Market
The court's ruling that XRP did not sell unregistered securities to the general public but did to institutional investors has left many scratching their heads. It's a mixed bag that has only added to the confusion surrounding the legal status of cryptocurrencies. It's clear that the regulatory landscape for cryptocurrencies is still very much a gray area, and this ruling has done little to clarify it.
Why I Advise Against Owning XRP Regardless of the Court's Ruling
Don't buy into the market's celebration of the XRP ruling. The company's legal troubles are far from over, and the potential for a hefty fine could lead to an XRP sell-off.
But even if this ruling were more positive, I still wouldn't recommend owning XRP. This token has miserably failed my 5Ts Test and has no real-world use, utility, or potential for widespread adoption, regardless of what the token's cultish community wants you to believe.
Watch my full analysis of XRP's long-term profitability here
Chief Digital Asset Strategist, American Institute for Crypto Investors