Ripple's Blood Battle with the SEC Comes to an End: A Tremor in the Crypto World, Who Will Determine the Fate of the Giants?

Original Title: Has Ripple walked away with a win against the SEC?

Authors: Katherine Ross, David Canellis, Blockworks

Compiled by: Yanan, BitpushNews

The Grand Finale is Approaching

The dispute between the U.S. Securities and Exchange Commission (SEC) and Ripple Labs seems to be nearing its conclusion, and this is not an exaggeration.

The reason I say "nearing" is that, although Judge Analisa Torres issued a final ruling on August 7, both parties still have the right to appeal this ruling.

On August 7, Judge Torres ruled that Ripple Labs must pay a fine of $125 million. This amount is significantly lower than the $2 billion originally sought by the SEC—this figure does not include penalties and estimated interest, which are $876 million and $198 million, respectively.

At the same time, this penalty amount is also much higher than the $10 million Ripple Labs requested when countering the SEC's lawsuit. Nevertheless, compared to the initial fine amount demanded by the SEC, this ruling can still be seen as a victory for the cryptocurrency company.

However, due to this ruling, a lawyer revealed to me that the SEC is likely to appeal the decision.

At least, Ripple's executives publicly claim that this ruling is a victory, which may suggest that they do not intend to appeal further.

In fact, when examining these numbers, Ripple only has to pay a fine that is 94% lower than the billions it could have faced, which is undoubtedly a relatively favorable outcome. Especially considering Ripple's substantial legal expenses over the past few years, this result seems even more reasonable.

However, the SEC also appears to believe that they have achieved a certain level of victory in this struggle. A spokesperson for the commission told me via email:

"The court approved the SEC's motion for remedial measures, which includes prohibiting Ripple from continuing to violate securities laws and imposing a massive civil penalty totaling more than 12 times the amount."

The court found that Ripple has shown a "willingness to break [the court's summary judgment] limits," indicating that it may ultimately cross the line (if it hasn't already), and the court emphasized the "seriousness of Ripple's conduct," clearly stating that "the frequent and highly profitable violations of Section 5 are undoubtedly serious violations."

"As multiple courts have repeatedly pointed out, regardless of the technology or label a company uses, securities laws apply to situations where a company offers and sells investment contracts."

Ripple Labs' Chief Legal Officer Stuart Alderoty stated that they "respect" this ruling. The ruling noted that after determining Ripple Labs violated Section 5 regarding institutional sales, in addition to imposing a fine, the company is also prohibited from "further violating securities laws." Reflecting on last summer's ruling, Judge Torres determined that programmatic sales (or algorithmic sales) do not constitute securities, but she found that institutional sales do meet the standards of the Howey Test.

A lawyer explained to me that, although the wording regarding violations of securities laws is somewhat vague, it seems to apply only to the institutional sales mentioned in the complaint and not to the personal sales of Garlinghouse (Ripple Labs CEO) or co-founder Chris Larsen (the SEC dropped charges against them at the end of last year), nor does it apply to programmatic sales or other distribution methods.

The court's ruling did not directly determine that Ripple's sales violated Section 5. However, the court pointed out Ripple's tendency to break the limits of the decree, suggesting that it may cross the line in the future (if it hasn't already). After weighing various factors comprehensively, the court determined that Ripple has a reasonable possibility of violating the decree in the future, thus issuing an injunction.

Fundamentally, this means that Ripple can continue to operate while complying with this ruling.

Therefore, if no one appeals, a long-standing unresolved issue in the cryptocurrency space may finally be resolved due to this ruling.

Data Summary

• Following the news, the price of XRP surged, reaching a maximum increase of 27%. It then slightly retraced but still rose by 22% to $0.6112.

• TAO and TON followed closely, rising by 8.3% within a day of the ruling. 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 Bittensor and Sui protocols, TAO and SUI.

• Last week, HNT, FTN, and XLM were the only coins among the top 100 to see increases between 2% and 8%.

• According to XRPScan data, there are approximately 300,000 payment transactions on XRPL daily. In comparison, the payment records on XRPL during the same period last year were only about half of this number.

• Additionally, about a thousand new accounts are created daily on XRPL, and the network's recent daily processing volume has reached as high as $2.26 billion.

Ripple Finally Sees the Light

Supporters of XRP can finally breathe a sigh of relief.

Although we have understood most of the ruling's content, we are indeed closer to a definitive outcome than ever before, unless an appeal arises in the future or Ripple Labs encounters new troubles in selling XRP to institutions.

The biggest question hanging over XRP has always been whether Ripple Labs' sales of XRP to retail investors (such as through cryptocurrency exchanges) constitute an investment contract. Fortunately, this question was resolved last June: selling XRP to retail investors does not constitute a security.

For the institutional sales portion, the industry generally expects it to result only in fines, which Ripple Labs is likely capable of bearing without significantly impacting the company. Therefore, we must agree that Ripple Labs, its founders, and the prospects for XRP all look bright.

This good news comes at just the right time. Although XRP performed well in the previous bull market, it has largely missed the opportunity in the recent bull market.

In the first half of the 2021 cycle, XRP's returns were in line with Bitcoin, both achieving over 400% growth from August 2019 to May 2021.

However, the situation is different in the current bull market. Depending on different interpretations, the starting point of this bull market can be traced back to after the most severe period of the FTX crisis in November 2022.

From the chart above, it can be seen that Bitcoin and Ethereum have achieved hundreds of percentage points of growth throughout 2023 and into the first half of 2024.

In contrast, XRP's increase appears relatively modest, with a maximum of about 150%. As of now, its performance over the past five years is roughly on par with the five-year return of the S&P 500 index, around 90%.

Although XRP remains the seventh-largest cryptocurrency by market capitalization at $34.5 billion, it has not seen significant increases like many other cryptocurrencies. There may be multiple reasons behind this.

With the emergence of numerous new networks and protocols, XRP, as a relatively older project, may have faced some impact on its competitiveness. Additionally, the rise of stablecoins has made XRP's primary value proposition—cross-border remittances—seem less forward-looking.

There is also a prevailing market view that this bull market is primarily driven by institutions. If institutions are actually purchasing unregistered securities directly, how can that boost XRP's price?

It is worth noting that according to Ripple Labs' quarterly blog post, since the SEC filed the lawsuit, the company has directly sold up to $14 billion worth of XRP to institutional investors (and other users).

Subsequently, Ripple Labs used $10.9 billion to programmatically (algorithmically) repurchase XRP on cryptocurrency exchanges, a move that means 78% of the funds generated from its main revenue source have been invested in the XRP spot market.

"Since 2020, to ensure that our growing On-Demand Liquidity (ODL) business has ample XRP supply, Ripple has been repurchasing XRP from the open market," Ripple stated in a disclosure several years ago.

The statement also noted, "We are always committed to minimizing the unnecessary impact of our repurchase activities on the market through measures such as limiting the quantity and sources of XRP purchased." Ripple initially described its repurchase plan as a means to "maintain the healthy development of the market."

Now that Ripple Labs has gained a certain degree of regulatory clarity, this may mean that XRP sales, repurchases, and institutional adoption are likely to become active again. The industry generally believes that this could bring new development opportunities for XRP.

Expanded Analysis: Where Will the Crypto Industry Go from Here?

The ruling in the Ripple vs. SEC lawsuit has sparked a series of deep reflections within the cryptocurrency industry:

• Does a $125 million fine truly serve as an effective deterrent compared to the potential billions in revenue? (However, this fine is indeed much higher than the $24 million paid by Block.one for its EOS initial coin offering, which raised $4 billion at the time!)

• How many victories—whether substantive or spiritual—does the cryptocurrency industry need to start ignoring SEC regulations again?

• Does this ruling truly bring regulatory clarity to the cryptocurrency industry?

• Has Ripple truly achieved decentralization?

The conclusion of the Ripple lawsuit undoubtedly holds significant meaning, but it also feels like it hasn't completely resolved the issue. This ruling undoubtedly propels the industry's development, but to clarify which direction we are heading, we may need to wait until several related cases conclude.

Ubiquitous and Omnipresent!

It seems that this ruling effectively concludes a highly watched case that sets the tone for how the cryptocurrency industry responds to SEC regulatory enforcement. Regardless of potential appeals, the conclusion of this case is indeed significant.

In my view, the legal teams of Coinbase and Binance are likely to study this case in depth to accumulate valuable experience for their legal strategies, even though the specific circumstances they face differ from those of Ripple.

I think the cryptocurrency industry may be able to breathe a little easier during this time. This ruling did not bring any surprises; the court's decision is consistent with last summer's preliminary ruling. A $125 million fine is undoubtedly a hefty penalty, but compared to the potential billions in fines, this outcome is certainly much better.

Learn from the lessons, summarize the experiences, and then move forward. Let us wait and see whether this ruling will become a key catalyst for the future development of XRP.