Is Ripple’s Legal Battle With SEC To End In 2022?

The legal fight between Ripple and the US Securities and Exchange Commission (SEC) has been in the news since December 2020. This has caused XRP to plummet from the 3rd to 7th position in the top cryptocurrencies list, and many believe that the litigation halts its potential.

However, Ripple has made progress in this lawsuit recently. In October, Ripple’s attorneys claimed that the SEC’s decision to sue the company was influenced by the officials’ opinions. This may indicate SEC lied in court about being unbiased. A cooling-off period in public proceedings sparked rumors that Ripple was preparing an out-of-court settlement with the SEC. On November 23, CEO Ripple stated that the company is seeing considerable progress in the case, which might be concluded by 2022.

What is the reason for this confrontation? In what ways does it affect one of the most popular cryptocurrencies? Is there a possibility for a positive outcome? Let’s get things figured out.

What is the cause of the lawsuit?

The SEC filed a complaint against Ripple Labs in December 2020 alleging securities-issuance violations. Authorities claimed the company didn’t register its XRP coins as securities, but the tokens helped bring in $1.3 billion that was used to fund the project.

The SEC asserted that the currency created by Ripple was used to fund its operations — which is a form of investing in a business, making it a security subject to control by the SEC.

What evidence does Ripple have against the SEC?

Ripple rejected the accusations, claiming that the Commission brought the proceedings based on a few individuals’ personal opinions and not its official policies. In spite of the SEC denials, Ripple’s words seem to have been proven true.

SEC ex-director William Hinman said in a speech that Ethereum was not a security, whereas there are no significant differences between ETH and XRP. Ripple found an email in which the SEC instructed a third party to assess XRP based on Hinman’s speech. Ripple’s attorneys concluded that a personal opinion became the official policy of the SEC, which was not supposed to happen.

What are the current developments?

Ripple was quite critical of the SEC in November. According to the company, it should be the CFTC (Commodity Futures Trading Commission) that regulates crypto assets, an authority that is more friendly to digital assets. Also, Ripple states that the SEC is “harming innovation and driving businesses overseas” and tries to undermine the authority as it doesn’t have a clear legal mandate from Congress. Ripple’s general counsel Stuart Alderoty says the SEC has a “hostile approach to crypto.” The authority declined to comment.

Stuart Alderoty kneels to protest the lack of proper cryptocurrency regulations in the United States

The SEC’s public debate with Ripple has reportedly cooled in recent days. Supposedly, two parties are nearing a settlement. Silence may also indicate a new round of confrontation: in November, the SEC requested Ripple share recordings of its internal meetings in which executives are alleged to be talking about XRP as a share of stock rather than a digital token. Nonetheless, the tension already settled down in July and October, so this signal per se is not that meaningful.

What’s ahead for Ripple?

In a CNBC interview on November 23, CEO Ripple Brad Garlinghouse said that the enterprise is “seeing pretty good progress despite a slow-moving judicial process.” The executive added that the team is “seeing good questions asked by the judge” who “realizes this is not just about Ripple, this will have broader implications.” Garlinghouse assumed that the proceedings with the SEC may end by 2022.

Meanwhile, Ripple has announced its intention to launch a Liquidity Hub in 2022 — a service that will make it possible for financial institutions to offer their clients trading and custody tools for Bitcoin, Ethereum, Litecoin, XRP, and some other assets.

Why is the Ripple vs. SEC lawsuit important for the entire crypto industry?

The whole crypto market is closely watching the trials. Ripple’s attorney says Ripple Labs is “uniquely situated to lead this discussion” about regulating cryptocurrency and that the case is not only about Ripple, but the company is speaking on behalf of the whole crypto domain.

In turn, JP Morgan predicts that if Ripple wins the suit and XRP trading resumes on Coinbase and other major platforms, this will enhance XRP adoption. Ripple has enormous potential as it conducts cross-border payments at an ultra-speed (3–5 sec compared to ~5 days in SWIFT) and with low fees of just 0.0001 XRP.

An overview of the background and consequences

Gary Gansler, the current chair of the SEC, favors strict crypto regulations, believing they add transparency necessary for investors and stakeholders. It is Gansler’s belief that the clear authority of the SEC will bring order to the crypto space in the US.

That viewpoint is shared by some officials. Among them is Senator Elizabeth Warren of Massachusetts who has provided Gansler with some regulatory assistance. In her opinion, cryptocurrency is a “new shadow bank,” since it lacks any consumer protections or financial stability inherent to traditional finance.

These statements are part of a broader discussion on whether cryptocurrency should be classified as securities or not. Gary Gansler is taking a hard stance against digital assets in an effort to ensure the safety of investors. There are obviously some crypto executives who disagree with this approach: they contend that even if the SEC acted well-intentioned, the current legislation is confusing and needs clarification.

Considering this, the decision of the court is very important. The verdict is likely to become an important precedent for similar future lawsuits in the United States and will have far-reaching consequences for the entire industry.

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