If you thought that understanding the blockchain was a wonky affair, you should try following the granularity of the Securities and Exchange Commission’s lawsuit against Ripple Labs, the founder of the XRP (CCC:XRP-USD) cryptocurrency.
In the ongoing is-it-or-is-it-not-a-security debate, XRP finds itself at the center of a much larger discussion. Proponents of cryptocurrencies insist that Ripple Labs has done nothing wrong. Despite their earlier reservations about the altcoin, blockchain advocates feel they must consider the greater good. If Ripple goes down, the SEC then has the precedent to address other digital decentralized assets.
Therefore, all eyes are on the defendant company as it pushes for the timely deposition of former SEC director William Hinman. In a nutshell, Hinman may have an expert opinion that’s favorable to Ripple since he provided clarification regarding Ethereum (CCC:ETH-USD). Therefore, if Ripple can juxtapose similarities between XRP with ETH — with the implication that XRP is a crypto coin, not a security — it further bolsters the defendant’s case.
In addition, the SEC is also in the hot seat with Senator Elizabeth Warren. A critic of Wall Street establishments, Warren wrote a letter to SEC chair Gary Gensler, requesting a framework for potential legislation to regulate cryptocurrencies. According to a Reuters report, Warren stated that “she needed answers from Gensler by July 28 on the SEC’s authority to protect consumers investing and trading in cryptocurrencies, and determine what future congressional action was needed.”
Hence, the problematic situation that the SEC finds itself. If the regulatory agency admits that XRP is like any other crypto, it theoretically weakens its control over the regulatory future of cryptocurrencies — something that Warren is basically demanding.
For its part, the SEC claims that ex-director Hinman’s prior clarifying opinions about Ethereum and Bitcoin (CCC:BTC-USD) were his own and not of the agency. But in the end, it might not even matter.
XRP Might Run into a Forced Out
One of the “dumber plays” you’ll see in baseball happened earlier this year between the Chicago Cubs and the Pittsburgh Pirates. With two outs at the top of the third inning, Javier Báez hit a chopper to the third baseman, who subsequently threw to first for what should have been an easy out.
You see, Báez has no choice but to run to first — and nothing that happens on the play matters so long as the out to first is recorded. Thus, the first baseman only has to catch the ball from third and step on the base.
But Báez expertly baited the first baseman, running instead back to home plate. Inexplicably, the first baseman bought it and chaos erupted. Eventually, Báez found himself safe at second, scoring the baserunner on the silliest of errors.
At this point, you might be asking yourself: what in the world does this have to do with XRP? Well, everything. Amid all this talk about regulating cryptocurrencies, ultimately, regulation proponents discover that you can’t manage decentralized assets like you can centralized assets such as stocks. For instance, there’s no plunge-protection team in the crypto sector.
That’s the appeal of XRP and its ilk: the blockchain is an innovation you can’t directly impinge. But what regulatory authorities can do is sit at first base and force the out. In other words, crypto investors can stay in decentralized la-la land all they want. It will be incredibly difficult for a tax agency to grab said investors for capital gains if those gains come in the form of like-to-like transactions.
But as soon as real dollars become involved, that’s where the authorities can clamp down. Thus, I wouldn’t let the noise of the Ripple lawsuit affect your decision-making process regarding XRP.
Situation Doesn’t Look Encouraging
What arguably should affect your decision on XRP is its technical posture. In my opinion, it’s ugly, with the coin struggling underneath both the 50 and 200 day moving averages. Even a legal victory might not change this narrative.
The reason is that even if XRP is deemed a crypto coin, regulation can still hit popular crypto exchanges such as Coinbase (NASDAQ:COIN). Unfortunately for blockchain proponents, the Ripple lawsuit may not be a one-and-done situation; that is, a win doesn’t mean the SEC will forever ignore cryptocurrencies.
Instead, with key legislators getting into the mix, this seems like the early innings of a long ballgame. Therefore, I wouldn’t get too excited about the lawsuit one way or the other. This is the U.S. government we’re talking about, and it will find a way to get you.
On the date of publication, Josh Enomoto held a LONG position in XRP, ETH and BTC. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
A former senior business analyst for Sony Electronics, Josh Enomoto has helped broker major contracts with Fortune Global 500 companies. Over the past several years, he has delivered unique, critical insights for the investment markets, as well as various other industries including legal, construction management, and healthcare.