Investors are exhausted with the huge battle between Ripple Labs and the Securities and Exchange Commission (SEC) over whether XRP (XRP-USD) is either a security (an investment contract) or a currency. The SEC says its the former and argues Ripple Labs and related parties should have registered the securities. The battle seems to rage on with new developments at every turn.
But, investors should care a lot about this situation. The result will be whether the SEC can begin massively regulating all aspects of cryptocurrencies. More importantly, it will the difference between whether companies can effectively start cryptos in the U.S. or not.
Moreover, XRP has been in an extended downturn for the past six months ever since XRP-USD peaked at $1.389 on Sept. 5, 2021. As of Feb. 21, 2022 the crypto was down to $0.755 per crypto coin.
Latest Developments in the SEC v. Ripple
On Friday, Feb. 18, Bloomberg reported that two major Ripple Labs documents were made public — each apparently supporting one side or the other.
As a result, Ripple Labs jumped on the release. They said these 2012 documents showed “…a ‘compelling’ legal analysis that Ripple received in 2012 that XRP is not a security.”
But Bloomberg revealed that in a February 2012 memo, Perkins Coie LLP attorneys advised Ripple not to sell the proposed XRP crypto coins. They said that various conditions could subject them to being regulated as securities or commodities.
In other words, both memos could be interpreted by either the SEC or Ripple Labs as supporting their position.
The Implications of the Ripple Case
If the SEC wins, which Bloomberg says is quite likely, they could start over-regulating all cryptocurrencies as investment contracts or securities.
This is why there have been virtually no major cryptocurrency launches in the U.S. Almost all cryptos in the past several years have been launched overseas. These overseas launches almost always specifically exclude Americans from being able to participate. The reason is the companies do not want to have any hassles with the U.S. SEC if they allow Americans to engage with their crypto.
So, the net effect of the SEC’s battle with Ripple Labs is that U.S. investors have been specifically excluded from many profitable opportunities.
On the other hand, if Ripple Labs wins, then U.S. companies can begin launching crypto tokens for U.S. investors. They will then not have to worry about the kind of regulatory harassment that Ripple Labs has received from the SEC.
Crypto Regulation by the SEC Will Cause a Chilling Effect
For example, Meta Platforms (previously Facebook) (NASDAQ:FB) shelved its plans in late Oct. 2019 to launch a crypto payment platform. At the time they said that without SEC approval they won’t even begin to start their plans.
So, the U.S. government could effectively passively stifle creative solutions in the payments arena for U.S. consumers.
Another example is the fact that the SEC recently fined BlockFi Lending $100 million. It was offering a crypto lending product without registering the product as a security with the SEC.
The effect is to make all decentralized finance (DeFi) lending/staking products subject to SEC regulations if offered to Americans. I suspect that this will force most DeFi products (which are based in locations overseas) to specifically exclude Americans from being able to earn crypto interest or borrow money.
In effect, the SEC chill over crypto products is on for Americans, especially if they win the Ripple Labs battle.
How This Will Affect Investors in XRP-USD
One wonders whether the SEC will try and punish investors in XRP if they win the battle with Ripple Labs. This possibility, given the SEC’s attempt to control everything relating to cryptocurrency, is very real and probably affects the trading in XRP-USD.
For example, what if the SEC told investors in XRP-USD that they had committed some sort of regulatory infraction? If they win the battle with Ripple Labs, who is to say that the SEC won’t try to make investing in XRP illegal?
It’s not likely, but it could still be possible, given the reach that the U.S. government is trying to reach in cryptocurrencies. This is despite the chill effect it has had on innovation by U.S. companies in cryptocurrencies.
On the date of publication, Mark R. Hake did not hold any position (either directly or indirectly) in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
Mark Hake writes about personal finance on mrhake.medium.com and Newsbreak.com runs the Total Yield Value Guide which you can review here.
