Source: Blockworks
By Katherine Ross & David Canellis
Compiled by: BitpushNews Yanan
The finale is coming
The dispute between the U.S. Securities and Exchange Commission (SEC) and Ripple Labs appears to be coming to an end, and that’s true.
The reason why it is said "soon" is that although Judge Analisa Torres made the final judgment on August 7, both parties still have the right to appeal the decision.
On August 7, Judge Torres ruled that Ripple Labs must pay a $125 million fine, which is far less than the $2 billion originally requested by the SEC—a figure that does not include fines and estimated interest, which are $876 million and $198 million, respectively.
At the same time, this penalty amount is much higher than the $10 million that Ripple Labs requested when fighting back against the SEC’s lawsuit. But in any case, compared with the amount of fines initially requested by the SEC, the verdict can still be seen as a victory for cryptocurrency companies.
However, because of this ruling, a lawyer told me that the U.S. Securities and Exchange Commission is likely to appeal the decision.
But at the very least, Ripple executives publicly declared the ruling a victory, perhaps suggesting they do not plan to appeal.
In fact, if you look at the numbers, Ripple only has to pay a fine that is 94% lower than the billions of dollars it might have otherwise faced, which is undoubtedly a relatively favorable result. Especially considering the huge amount of money Ripple has spent on legal proceedings over the past few years, this result is even more reasonable.
However, the SEC also seems to think they have won a certain victory in this fight. A spokesperson for the commission told me via email:
“The court granted the SEC’s motion for remedial measures, which included an injunction against Ripple to continue violating the securities laws and an imposition of a substantial civil penalty in the aggregate amount of more than 12 times the amount sought by Ripple.”
The court found that Ripple had demonstrated a “willingness to push the boundaries of the [summary judgment] order,” suggesting that it might eventually cross those boundaries (if it had not already done so), and highlighted the “egregious nature of Ripple’s conduct,” noting that “the frequent and highly profitable violations of Section 5 are undoubtedly serious violations.”
“As multiple courts have repeatedly stated, securities laws apply when a company offers and sells investment contracts, regardless of the technology or label it uses.”
Stuart Alderoty, chief legal officer of Ripple Labs, said they "respect" the ruling. The judgment stated that after finding that Ripple Labs violated Section 5 regarding institutional sales, in addition to imposing a fine, the company was also prohibited from "further violating securities laws." Looking back at the ruling last summer, when Judge Torres ruled that programmatic sales (or algorithmic sales) did not constitute securities, she found that institutional sales did meet the standards of the Howey Test.
One attorney explained to me that while the language regarding securities law violations is somewhat vague, it appears to apply only to the institutional sales practices cited in the complaint, not to individual sales by Garlinghouse or co-founder Chris Larsen (whose cases the SEC dropped late last year), or to programmatic or other distribution methods.
The court’s decision did not directly find that Ripple’s sales violated Article 5. However, the court noted that Ripple had a tendency to push the boundaries of the statute, suggesting that it might cross those boundaries in the future (if it has not yet done so). After weighing all the factors, the court found that there was a reasonable possibility that Ripple would violate the statute in the future, and therefore made the decision to issue the injunction.
Essentially, this means that Ripple can continue to operate while complying with the ruling.
Therefore, if no one appeals, a long-standing unresolved issue in the cryptocurrency field may finally be resolved with this ruling.
Data Summary
After the news came out, the price of XRP soared, with the highest increase reaching 27%. It then slightly corrected, but still rose 22% to $0.6112.
TAO and TON followed closely behind, rising 8.3% each in the day after the verdict. On Wednesday, Grayscale launched two new cryptocurrency investment trusts, Grayscale Bittensor Trust and Grayscale Sui Trust. These trusts focus on investing in the native tokens of the Bittensor and Sui protocols, TAO and SUI.
Last week, HNT, FTN, and XLM were the only coins in the top 100 to see gains between 2% and 8%.
According to XRPScan data, XRPL currently has about 300,000 payment transactions per day. In contrast, in the same period of 2022, XRPL's payment records were only about half of this number.
Additionally, approximately one thousand new accounts are created on XRPL every day, and the network’s recent daily volume has reached $2.26 billion.
Ripple finally sees the light
XRP supporters can finally breathe a sigh of relief.
While we already know most of the ruling, we are indeed closer than ever to a definitive outcome, barring future appeals or new troubles for Ripple Labs in selling XRP to institutions.
The biggest question hanging over XRP has always been whether Ripple Labs' sales of XRP to retail investors (for example, through cryptocurrency exchanges) constitute investment contracts. Fortunately, in June last year, this issue has been resolved: the sale of XRP to retail investors does not constitute a security.
As for the sales to institutions, the industry generally expects that it will only result in fines, which Ripple Labs is likely to be able to bear without causing major impact on the company. Therefore, we have to agree that the future of Ripple Labs, its founders and XRP is bright.
This good news comes at an opportune time. Although XRP performed well in the previous bull run, it has largely missed out on the latest one.
During the first half of the 2021 cycle, XRP’s returns were in line with Bitcoin’s, with both posting gains of more than 400% between August 2019 and May 2021.
However, things are different in the current bull run, which, according to various interpretations, can be traced back to November 2022, after the worst of the FTX crisis.
As can be seen from the chart above, both Bitcoin and Ethereum achieved hundreds of percentage points of growth in 2023 and the first half of 2024.
XRP’s gains have been relatively modest by comparison, at best around 150%. So far, its performance over the past five years has been roughly in line with the S&P 500’s five-year return, at around 90%.
Although XRP remains the seventh-largest cryptocurrency by market cap at $34.5 billion, it has failed to see a surge like many other cryptocurrencies. There could be several reasons behind this.
As a relatively old project, XRP’s competitiveness may have been affected by the emergence of many emerging networks and protocols. In addition, the rise of stablecoins has made XRP’s main value proposition - cross-border remittances - no longer seem so forward-looking.
There is also a view in the current market that this bull market is mainly driven by institutions. If institutions directly purchase unregistered securities, how can they push up the price of XRP?
It’s worth noting that according to Ripple Labs’ quarterly blog post, the company has sold up to $14 billion worth of XRP directly to institutional investors (as well as other users) since the SEC filed its lawsuit.
Subsequently, Ripple Labs used $10.9 billion to repurchase XRP on cryptocurrency exchanges in a programmatic (algorithmic) manner. This move means that 78% of the funds generated by its main source of income were invested in the spot market of XRP.
“Since 2020, Ripple has been buying back XRP from the open market to ensure an ample supply of XRP for our growing ODL business,” Ripple said in a disclosure statement a few years ago.
The statement also noted: "We remain committed to minimizing any unnecessary impact our buybacks have on the market through measures such as limiting the amount and source of XRP purchased." Ripple initially described its buyback program as a means of "maintaining the health of the market."
Now that Ripple Labs has gained some regulatory clarity, it could mean that XRP sales, buybacks, and institutional adoption are expected to become active again. The industry generally believes that this could bring new development opportunities for XRP.
Extended Analysis: Where is the Crypto Industry Heading?
The ruling in the lawsuit between Ripple and the U.S. Securities and Exchange Commission has triggered a series of in-depth reflections in the cryptocurrency industry:
Is a $125 million fine an effective deterrent relative to the billions of dollars in potential revenue? (It is, however, far more than the $24 million Block.one paid for its EOS ICO, which raised $4 billion!)
How many victories — both material and moral — does the cryptocurrency industry need before it starts ignoring SEC regulation again?
Does this ruling truly bring regulatory clarity to the cryptocurrency industry?
Is Ripple truly decentralized?
The conclusion of the Ripple lawsuit is undoubtedly significant, but it also feels like the issue has not been completely resolved. This ruling has undoubtedly promoted the development of the industry, but to know exactly where we are heading, we may need to wait until the next few related cases are concluded.
It is everywhere and can be seen everywhere!
At present, this ruling actually brings an end to a high-profile case that has set the tone for how the crypto industry will respond to regulatory enforcement by the SEC. Putting aside the possibility of an appeal, the end of this case is indeed significant.
In my opinion, the legal teams of Coinbase and Binance are likely to study this case in depth to gain valuable experience for their own legal tactics, even though the specific circumstances they face are different from Ripple.
I think the crypto industry can breathe a sigh of relief during this period. The verdict did not bring any surprises, and the court's ruling was consistent with the initial verdict last summer. $125 million is undoubtedly a huge fine, but compared to the billions of dollars in fines that could have been faced, this result is undoubtedly much better.
Learn lessons, sum up experience, and move on. Let us wait and see whether this judgment will become a key catalyst to promote the future development of XRP.
