Controversial cryptocurrency XRP (XRP-USD) is soaring on Thursday following a major decision by a New York federal judge. For years, the U.S. Securities and Exchange Commission (SEC) has alleged that Ripple Labs — the founder of the XRP crypto — has run afoul of securities laws. Moving forward, this Ripple settlement news could potentially lay the foundation for legal clarity regarding virtual currencies.
According to CoinMarketCap, on Aug. 7, the Manhattan court judge presiding over the case ordered Ripple to pay a civil penalty amounting to $125 million. It also issued mandates prohibiting the company from violating U.S. securities laws. Subsequently, XRP shot up near the 62-cent level during afternoon trading.
Ripple CEO Brad Garlinghouse also celebrated the Ripple settlement news, stating that it represented a victory for the company, the crypto industry and the rule of law. It may seem strange that being forced to pay millions of dollars would lead to jubilation. However, two factors exist.
First, the contentious legal matter — which has been in place since December 2020 when the SEC originally filed suit — appears to be reaching an end. Second and most significantly, from a financial perspective, the regulatory agency sought fines and penalties totaling $2 billion. The ruling represents a fraction of the original amount.
The Ripple Settlement News Catches Bears Napping as XRP Soars
One interesting note about the consequences of the dramatic rise in XRP is the implications for traders. Per CoinMarketCap, the swing northward from the Ripple settlement news caught market participants off guard. The move forced the liquidation of 40% more short positions than long positions within a four-hour period.
Data from CoinGlass reveals that immediately following the price spike, the bullish wave wiped out $5.4 million in short positions. Should XRP hit 65 cents, it’s possible that another $20 million in short positions may face liquidation. On the flip side, a dip to 55 cents could affect the long side of the trade, impacting $25 million worth.
However, the biggest theme regarding the XRP jump is its implications for the broader crypto sector. According to Bloomberg, the SEC went after Ripple for raising money through the sale of the digital token. The regulatory body insists that XRP had to be registered as a security to conduct such a transaction.
Moving forward, the Ripple settlement news should provide more clarity regarding the SEC’s regulatory power over virtual currencies. For now, Garlinghouse remarked that Ripple respects the court’s decision and that the team will focus on building its brand.
On the date of publication, Josh Enomoto held a LONG position in XRP. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
On the date of publication, the responsible editor did not have (either directly or indirectly) any positions in the securities mentioned in this article.
