On December 22, 2020, the U.S. Securities and Exchange Commission (SEC), filed a lawsuit against Ripple Labs, Inc. and its creators, Brad Garlinghouse and Chris Larsen.
The SEC claimed that Ripple had conducted a $1.3 billion unregistered securities offering and sold XRP to retail investors. This lawsuit caused a significant decline in XRP’s value, with the cryptocurrency losing over 70% of its value in just a few days.
What is XRP?
XRP was created primarily to act as a bridge currency for cross-border payments. Settling transactions between banks in different countries for example. But XRP's additional value comes in the form of is inexpensive transaction fees.
If you have ever traveled abroad and exchanged your home currency for a foreign currency, you know how expensive it can be. Sometimes you lose up to 20% of the original value to currency swap fees, even using your local bank.
XRP would allow an individual to trade their USD for XRP, and XRP for EUR, with a very minimal loss to transaction fees. Additionally it could do so digitally.
This makes it incredibly useful for micro-transactions. Ethereum for example, is far to expensive for small transactions. Swapping USDT for ETH, and ETH for LINK (insert any token here) could cost $100 or more... if you are trying to buy $200 worth of LINK this becomes problematic quickly.
XRP vs. the SEC
So why did the Securities and Exchange Commission come after XRP? largely due to how they marketed XRP to institutions.
the SEC claimed that XRP met the requirements laid out in the Howey Test, which puts XRP under the jurisdiction of the SEC.
According to the Howey test, If an investment vehicle promises profits (think: apple stock rising or dividend payouts) due to the effort of the group behind the investment or performance in the company (think: you are not Tim Cook, but you hope he makes good decisions) this would make the investment a security rather than a Commodity like Gold.
If the SEC was proven correct, this would have substantiated their claims that Ripple labs was selling unregistered securities.
Why does this matter?
Two days ago on Thursday July 13th, The SEC's allegations were (mostly) proven to be false. Specifically: XRP being sold on exchanges to retail investors was proven not to be the sale of unregistered securities. XRP rocketed up 65% (at the time of writing this) in only a few hours.
This is a major win for the crypto space. One of the primary claims of regulatory bodies has been that crypto tokens are unregistered securities, and we now have precedent to say they are wrong... at least when sold to retail investors.
The SEC did have a win here as well: it was ruled that the sale of these tokens to institutions was in fact the sale of unregistered securities. and the case is not over yet. However this is one of the biggest wins in the crypto space we have ever seen, and many are calling for a new "alt-season" in the wake of this announcement.
For years now major firms have been racing to get a Bitcoin ETF approved. Blackrock Inc. (the worlds largest money manager, hovering in the $8 trillion range) most recently filed for their ETF to be approved, stating that there is "Massive pent-up demand" for crypto exposure in retail and less tech savvy investment portfolio's, who are more comfortable with familiar investment vehicles.
A Bitcoin ETF would invest in the cryptocurrency on behalf of its shareholders. In other words, investors could easily get direct exposure to crypto by going to their brokerage and buying shares the way they would a stock.
This is a huge deal for the Boomer generation for example, who currently have the majority of their investments held in index funds or ETF's of some variety and prefer using financial planners and advisors to self-custody.
If Blackrock and others are approved to launch their Bitcoin ETF products, this could open the flood gates for $30 trillion of liquidity to enter the market (according to a Bloomberg analyst).
One of the main hurdles that Crypto must overcome is education. Any time a new asset class shows up on the scene, it takes time to adjust and educate the population to it. This has been a major challenge for Crypto, in no small part due to the developers of the space having an inordinate love for confusing jargon and acronyms. Not to mention the convoluted systems and processes for using the product.
"You just have to swap USDT for ETH on Uniswap and then use the Trader Joe bridge to buy WETH.e which you can then swap for JOE which is going to take off I am telling you, its going to moon" - This is somehow perfectly lucid english.
Overcoming this gap between the wealth holders in the world (who tend to be from older generations) and the creators of crypto projects (who have not left their computer screen in days) has slowed the industry down in regard to mainstream adoption.
"Hello Denise, I have adjusted your portfolio to have a 10% exposure to Bitcoin using Blackrock's ETF, you can buy or sell anytime during the trading day using your same brokerage account" – Also perfectly lucid english, but english that is familiar to the holders of $30t worth of investments.
If these Bitcoin ETF's are approved, this will be the largest capital injection crypto has seen from retail investors. Bitcoin is hovering around a major resistance at $30k right now, and there are many bearish signs in the market.
That being said: With XRP's win against the SEC, and Bitcoin ETF's having a more than favorable likelihood of being approved, we could potentially see a massive move to the upside in the near future. This is very news sensitive though, and all of the same risk mitigation protocols must remain in place.
We could see a major rejection if the Bitcoin ETF is denied (though firms will continue re-applying, as they have done for a while now), but most analysts are seeing a more than 50% chance of approval (some as high as 70%).
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