The company behind XRP, Ripple Labs, was founded in 2012 and is therefore one of the older projects in the crypto sector. The core concept behind the project is to enable fast cross-border money transfers. Basically, the project is a challenge compared to the SWIFT system commonly used by banks, which is used for international payments, but is expensive to carry out and usually takes several days.
With the Ripple network, however, such transfers should be possible in seconds and at low cost. It is important to mention that the protocol itself is not a cryptocurrency but a blockchain network and that the underlying coin XRP is acquired when an investment is made, which is to be used within the ecosystem as a means of payment and value storage. However, XRP is not absolutely necessary for the use of the Ripple protocol. The company sells software solutions based on the Ripple protocol to banks.
The company is backed by investors like Japanese financial services giant SBI Holdings, Spanish bank Santander and leading venture capital firms like Andreessen Horowitz, Lightspeed and Peter Thiels Gründerfonds.
SEC wants to ripple the collars
The US Securities and Exchange Commission (SEC) has now filed a lawsuit against the company alleging that Ripple made an unregistered $ 1.3 billion offering of securities. Specifically, the regulator is suing Ripple and two of the executives, CEO Brad Garlinghouse and co-founder Chris Larsen. The main allegation is that XRP should not be classified as a currency but as a company participation and the previous procedure of the company was thus illegal due to a lack of licenses.
“We claim that Ripple, Larsen and Garlinghouse have failed to register their ongoing offering and sales of billions of XRP to retail investors, which gives prospective buyers adequate disclosures about XRP and Ripple’s business and other important long-term protections essential to our robust public market system Meaning are withheld, “said Stephanie Avakian, director of the SEC’s enforcement department.
After the initial ICO, Ripple has continuously sold further stocks of XRP on the market in recent years. Some market watchers accuse the company that this is the only business model that keeps the company afloat. Ripple defends itself against the allegations and denies that XRP is not a currency but a security.
What would the classification as a security entail?
On the one hand, the company would certainly have to pay a heavy fine for disregarding the laws and market rules. On the other hand, classification as a security would result in strict new rules that would severely restrict the project. Most crypto-trading venues are not regulated to allow them to offer securities for trading and that would mean that XRP would lose many of the major trading venues on which it is listed. Also, Ripple could no longer sell the 55 billion of the 100 billion XRP that it still owns as easily and continuously as it was previously and that could endanger the survival of the company in the long term if it did not do business with the Ripple protocol to banks enough revenue can be generated.
Crash by 50 percent
In the last bull market, XRP had reached its previous peak with a short-term value of $ 3 per coin, but that was only short-lived. In the long bearish period that followed, the price fell below 20 cents. With the new upswing in the entire crypto sector since the summer of this year, however, XRP has also gone well again and the last interim high of $ 0.7 was reached in November.
However, the SEC’s allegations have put the course in freefall. XRP is now far away from the interim high and had to give way by over 50 percent, with a further downward trend.
Even if the company can settle the dispute with the SEC – which is not impossible – the price is likely to remain under enormous pressure in the coming months, while the rest of the market is potentially still on the brink, given the many indicators that suggest that the next bull market for Bitcoin has dawned. Combined with the fact that XRP is likely to lose many of its listings on crypto exchanges, the prospects for the coin are not good in the next few months.
By Alexander Mayer
Title photo: Larina Marina / Shutterstock.com
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