Lawsuit of the Future – The Ripple Lawsuit ⚖

Lawsuit of the Future – The Ripple Lawsuit

One of the reasons why we could see a cooldown in the cryptocurrency industry is due to a major lawsuit that could possibly decide the future of the asset class. Back in 2020, the SEC charged Ripple, the company whose services are on its token XRP, with selling $1.3 billion worth of XRP tokens in an unregistered securities offering. Ripple ended up fighting back against the lawsuit, considering the fact that XRP has the 6th highest market cap in the industry, and the legal conflict has gone on for the last 2 years with a verdict soon to come.

There has been a major struggle between crypto companies and regulators on how to classify crypto assets in the framework of the SEC, and as we have discussed before, regulations have been hard to come by due to the vast amount of regulators in the world. The base question in the lawsuit is whether XRP should be deemed a security, or something else that is unknown, and the SEC argues that it is a security because it met the criteria of the Howey test, which defines a security as “an investment of money, in a common enterprise, with reasonable expectation of profits, to be derived from the efforts of others”. Ripple, on the other hand, argues that XRP fails to meet the Howey test because it is a common interest rather than a common enterprise, and that there are no qualifications for it being considered as an investment contract.

The case has importance because the SEC has stressed that they believe all cryptocurrencies are securities, and therefore should be treated with the same scrutiny. If the judge rules in favor of the SEC, it sets a precedent and opens a pathway for many cryptocurrencies to also be considered securities, which would be a major regulatory blow.

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I am not a financial advisor and my comments should never be taken as financial advice. Investments come with risk, so always do your research and analysis beforehand.

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