XRP cryptocurrency jumps as investors hope Ripple will win legal battle with the SEC
A visual representation of the digital cryptocurrency, XRP.
S3studio | Getty Images
The XRP cryptocurrency soared on Wednesday as investors grew hopeful that Ripple, a company closely associated with the token, would win its prolonged legal battle with the U.S. Securities and Exchange Commission.
The token was worth around 45 cents at about 8 a.m. ET, according to data from CoinGecko, up over 11% in the last 24 hours. It was earlier trading up as much as 20%.
Traders pointed to a supplemental notice submitted by Ripple on Monday which pointed to a ruling in a separate case concerning Binance.US’ rescue plan for collapsed crypto lender Voyager Digital. Under the plan, Binance’s U.S. unit was to buy all of Voyager’s assets, including its native VGX token, in a $1.3 billion deal.
The SEC rejected the plan, arguing VGX was akin to a security and calling Binance an unregistered securities exchange, according to the notice from Ripple.
However, the judge rejected the SEC’s objections and approved the bankruptcy plan citing what he called the “vagueness” of the regulator’s arguments and stating the SEC had not “offered any guidance at all as to just what it was that the Debtors allegedly were supposed to prove” to demonstrate VGX was not a security, according to the Ripple letter.
The SEC wasn’t immediately available for comment when contacted by CNBC.
The SEC accuses Ripple, CEO Brad Garlinghouse and co-founder Chris Larsen of breaching U.S. securities laws by selling XRP without first registering it with the regulator. Ripple contests the SEC’s allegations, maintaining the view that XRP should be considered a digital currency rather than a security.
Monica Long, president of Ripple, told CNBC Wednesday morning that she was “very hopeful” about achieving a positive resolution to the SEC battle, adding she thinks it will reach a conclusion sometime this year.
Long said she thinks it’s “very unlikely” the judge will rule in favor of the SEC “considering by our view both the facts and the law are on our side.”
If XRP were to be deemed a security, it could have huge ramifications for the digital currency industry.
Floods of tokens may end up falling into the same category, making them regulated financial instruments that would need SEC supervision and frequent transparency disclosures.
Market sentiment improving
Ripple and the SEC have now both submitted their final round of briefs seeking a summary judgment to the case. The case now rests with Judge Analisa Torres of the Southern District of New York, who is expected to issue a verdict soon.
It is not clear when she will make her decision. However, some crypto investors believe an outcome will arrive in the coming days.
XRP “is being bolstered by a potential positive outcome in the SEC case,” Vijay Ayyar, vice president of international at crpyto exchange Luno, told CNBC via email Wednesday.
The token, which is the sixth-largest globally by market value, is also being boosted by the broader crypto market sentiment, Ayyar said.
Bitcoin is up 70% since the start of the year and is currently trading above $28,000 for the first time in nine months. Ether, the second-biggest token, has risen 50% year-to-date.
“Overall, crypto markets have rallied in the past week or so, given the anticipation of a pause or slow down in interest rates and the slowdown in inflation,” according to Ayyar.
Regulation by enforcement?
Ripple’s Long said she believed the SEC was regulating through enforcement rather than establishing clear regulations for the sector. Europe is more advanced in its treatment of crypto, she argued, highlighting the bloc’s Markets in Crypto Assets regulation as an example.
“We’re seeing action through enforcement vs. setting clear rules and regulation which is what all of us in the industry desire,” Long said.
“Europe is really emerging as a leader in setting really clear regulations and rules that allow crypto companies and also traditional finance to embrace crypto.”
For its part, the SEC has said it wants all crypto companies and projects to bring their operations into compliance with federal securities laws.
In an interview with CNBC in February after a crackdown on the crypto exchange Kraken, SEC Chair Gary Gensler said, “There’s a handful of tokens that have actually registered. The intermediaries, the storefronts if you wish, the casinos that people are investing in and investing at need to properly comply and disentangle these bundled products.”
“If this field has any chance of survival and success, it’s time-tested rules and laws to protect the investing public.”
In recent weeks, the regulator has taken aim at numerous crypto firms alleging they are engaged in illegal securities offerings.
Stablecoin issuer Paxos said the SEC served it with a notice threatening legal action over claims that BUSD, the native stablecoin of crypto exchange Binance, was a security that should have been registered with the regulator.
The regulator also hit crypto lender Genesis and exchange Gemini with charges alleging a high-yield investment product offered by the two companies should have been treated as a security.
WATCH: Bitcoin at $10,000 — or $250,000? Investors are sharply divided on 2023
Tik Tok creators gather before a press conference to voice their opposition to the “Protecting Americans from Foreign Adversary Controlled Applications Act,” pending crackdown legislation on TikTok in the House of Representatives, on Capitol Hill in Washington, U.S., March 12, 2024.
Craig Hudson | Reuters
The Supreme Court on Friday will hear oral arguments in the case involving the future of TikTok in the U.S., which could ban the popular app as soon as next week.
The justices will consider whether the Protecting Americans from Foreign Adversary Controlled Applications Act, the law that targets TikTok’s ban and imposes harsh civil penalties for app “entities” that continue to carry the service after Jan.19, violates the U.S. Constitution’s free speech protections.
It’s unclear when the court will hand down a decision, and if China’s ByteDance continues to refuse to divest TikTok to an American company, it faces a complete ban nationwide.
What will change about the user experience?
The roughly 115 million U.S. TikTok monthly active users could face a range of scenarios depending on when the Supreme Court hands down a decision.
If no word comes before the law takes effect on Jan. 19 and the ban goes through, it’s possible that users would still be able to post or engage with the app if they already have it downloaded. However, those users would likely be unable to update or redownload the app after that date, multiple legal experts said.
Thousands of short-form video creators who generate income from TikTok through ad revenue, paid partnerships, merchandise and more will likely need to transition their businesses to other platforms, like YouTube or Instagram.
“Shutting down TikTok, even for a single day, would be a big deal, not just for people who create content on TikTok, but everyone who shares or views content,” said George Wang, a staff attorney at the Knight First Amendment Institute who helped write the institute’s amicus briefs on the case.
“It sets a really dangerous precedent for how we regulate speech online,” Wang said.
Who supports and opposes the ban?
Dozens of high-profile amicus briefs from organizations, members of Congress and President-elect Donald Trump were filed supporting both the government and ByteDance.
The government, led by Attorney General Merrick Garland, alleges that until ByteDance divests TikTok, the app remains a “powerful tool for espionage” and a “potent weapon for covert influence operations.”
Trump’s brief did not voice support for either side, but it did ask the court to oppose banning the platform and allow him to find a political resolution that allows the service to continue while addressing national security concerns.
The short-form video app played a notable role in both Trump and Democratic nominee Kamala Harris’ presidential campaigns in 2024, and it’s one of the most common news sources for younger voters.
In a September Truth Social post, Trump wrote in all caps Americans who want to save TikTok should vote for him. The post was quoted in his amicus brief.
What comes next?
It’s unclear when the Supreme Court will issue its ruling, but the case’s expedited hearing has some predicting that the court could issue a quick ruling.
The case will have “enormous implications” since TikTok’s user base in the U.S. is so large, said Erwin Chemerinsky, dean of Berkeley Law.
“It’s unprecedented for the government to prohibit platforms for speech, especially one so many people use,” Chemerinsky said. “Ultimately, this is a tension between free speech issues on the one hand and claims of national security on the other.”
WATCH: It appears TikTok could really get shut down, says Jim Cramer
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