Despite expectations of a settlement, XRP price action suggests some investor caution. Settlement terms could materially impact near-term XRP price trends.
SEC vs. Ripple: SEC’s Position
In March, the SEC filed its remedies-related opening brief, pushing for a $2 billion penalty and an injunction prohibiting XRP sales to institutional investors. The SEC alleged that Ripple continued to violate US securities laws after the December 2020 court filing (post-complaint). Significantly, an injunction could impact Ripple’s US expansion plans.
Ripple filed its remedies-related opposition brief in April, proposing a $10 million penalty. Notably, Ripple argued that post-complaint activity complied with US securities laws. Ripple also highlighted that the SEC never accused it of recklessness that would warrant an excessively punitive penalty.
The SEC filed its remedies-related reply brief in April, providing the penalty floor of $102.6 million for the case, calculated using its methodology from previous cases.
It is possible that the SEC reassessed Ripple’s post-complaint activity and reconsidered its position in the case.
SEC vs. Ripple: Ripple’s Defense
In the remedies-related opposition brief, Ripple argued that post-complaint activity included XRP sales to accredited investors and via ODL agreements. Sales to accredited investors are exempt from US securities laws. Furthermore, ODL contracts prevent profits or losses.
The Howey Test’s third prong is the expectation of profit through the effort of others. XRP holders via ODL contracts cannot expect profits and do not meet Howey’s test.
Settlement Impact
Favorable settlement terms could boost XRP demand and support a return to $1.00. Ripple may also address the classification of its planned stablecoin. The SEC’s reply brief targeted Ripple’s stablecoin plans, calling it an issuance of a new unregistered crypto asset.
A stablecoin, by definition, is designed to maintain a stable value relative to a specific asset or benchmark, such as the US dollar. It is unclear how the SEC sees a stablecoin meeting the third prong of the Howey test. SEC confirmation that Ripple’s stablecoin would not be a security would be favorable.
A Potential US XRP-Spot ETF Market
A settlement could pave the way for a US XRP-spot ETF market. On Monday, the SEC approved US ETH-spot ETF applications. The ETF Store President shared a legal perspective from Foley and Lardner LLP, stating,
“The most important development from approval order was SEC heavily implying ETH is commodity & not security. Approval order demonstrates crypto assets can start life as security & transition to commodity over time.”
XRP to Target $1.00 on Settlement and XRP-Spot ETF Market Hype
SEC affirmation that XRP is not security and issuer plans to launch an XRP-spot ETF could also support an XRP return to $1.00.
In July 2013, XRP struck a high of $0.9327 following the Programmatic Sales of XRP ruling. In July 2023, Judge Analisa Torres ruled that programmatic sales of XRP do not satisfy the third prong of the Howey Test.
