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XRP at risk of being classified as security, two federal judges reject Ripple ruling

  • Ripple ruling, which labels XRP as a non-security in secondary sales, is at risk of being thrown out. 
  • XRP may be declared as an unregistered security after two federal judges scoff at Ripple ruling from July 2023. 
  • XRP price resists decline below the psychologically important $0.60 level. 

Ripple (XRP) ruling from July 2023 differentiates between XRP secondary market sales and institutional sales of the token by Ripple. Per the July ruling by Judge Analisa Torres, the altcoin is identified as a “non-security” in transactions on exchanges. 

The ruling is in jeopardy as two federal judges have thrown out Judge Torres’s application of the Howey Test to XRP, and American Journalist Charles Gasparino highlights the incoherence. 

Daily digest market movers: Ripple ruling at risk of being thrown out

  • Ripple Labs’ token XRP was classified as a “non-security” in secondary market sales and a “security” in institutional sales made by the payment remittance firm. 
  • The classification by Judge Analisa Torres, in the July 13, 2023 ruling, relied on the US Supreme Court’s Howey test, a legal framework that helps identify whether an asset is an investment contract and therefore a security under securities laws. 
  • Judge Torres applied Howey and divided XRP sales in two categories, however this application is being questioned by US Federal judges in the Coinbase and Terraform Labs’ lawsuits. 
  • Charles Gasparino, an American journalist and XRP expert states that rejection of Judge Torres’ ruling by judges shows the “incoherence” of her Howey application. 
  • Gasparino remarks that no one can guarantee the ruling, it may get thrown out and XRP may be declared as an unregistered security, he considers the reaction from the federal judges as a sign that Judge Torres’ legal analysis is “faulty.”
  • Ripple’s Chief Legal Officer Stuart Alderoty re-read the Coinbase ruling from Wednesday and said that the Securities and Exchange Commission (SEC) has sold the Judge a bill of good to accept in the Coinbase lawsuit. 
  • The difficult part, where the SEC produces evidence, comes next, and Alderoty expects the regulator to face the heat at this stage.
  • XRP price decline comes alongside whale accumulation of the altcoin. On-chain metrics point at whales “buying the dip.”
  • Data from Santiment shows that XRP whales holding between 10 million and 100 million tokens added 190 million XRP tokens to their holdings between March 27 and April 1. This cohort is important because it typically accumulates during the dip and takes profits at local tops, as seen in the Santiment chart for a six-month timeframe. 
  • A larger whale cohort, holding over 100 million XRP tokens was also seen accumulating, in the chart below. 


XRP supply distribution

Technical analysis: XRP price rangebound above key psychological level

Ripple price has been consolidating between a tight range, $0.9380 (July 13, 2023 peak) and $0.4226 (August 14, 2023 low) for over 460 days. The development has resulted in a flip of the $0.67 support level into resistance for the altcoin. 

Currently, XRP price is trading above the psychologically important $0.60 level, the weekly Relative Strength Index (RSI) is above 42 for over a year, hinting that buyers remain in control of Ripple. The Awesome Oscillator (AO) is hovering above the zero level, its green bars consecutively taller, suggesting that there is a dominant bullish momentum in the altcoin. 

XRP price is likely primed for a recovery to the year-to-date peak of $0.7440 (March 11, 2024). This is roughly 16% away from the current price of $0.6233. 


XRP/USDT 1-week price chart 

There is a likelihood of a recovery in XRP price however traders need to watch Bitcoin price for cues. A Bitcoin price correction could jeopardize altcoin gains and take XRP and other large market cap tokens down with it. 

In the downside scenario, XRP price could tumble to the January 28 low of $0.4853 (a crash of nearly 20%) or the weekly support level at $0.4117. 


SEC vs Ripple lawsuit FAQs

It depends on the transaction, according to a court ruling released on July 14: For institutional investors or over-the-counter sales, XRP is a security. For retail investors who bought the token via programmatic sales on exchanges, on-demand liquidity services and other platforms, XRP is not a security.

The United States Securities & Exchange Commission (SEC) accused Ripple and its executives of raising more than $1.3 billion through an unregistered asset offering of the XRP token. While the judge ruled that programmatic sales aren’t considered securities, sales of XRP tokens to institutional investors are indeed investment contracts. In this last case, Ripple did breach the US securities law and will need to keep litigating over the around $729 million it received under written contracts.

The ruling offers a partial win for both Ripple and the SEC, depending on what one looks at. Ripple gets a big win over the fact that programmatic sales aren’t considered securities, and this could bode well for the broader crypto sector as most of the assets eyed by the SEC’s crackdown are handled by decentralized entities that sold their tokens mostly to retail investors via exchange platforms, experts say. Still, the ruling doesn’t help much to answer the key question of what makes a digital asset a security, so it isn’t clear yet if this lawsuit will set precedent for other open cases that affect dozens of digital assets. Topics such as which is the right degree of decentralization to avoid the “security” label or where to draw the line between institutional and programmatic sales are likely to persist.

The SEC has stepped up its enforcement actions toward the blockchain and digital assets industry, filing charges against platforms such as Coinbase or Binance for allegedly violating the US Securities law. The SEC claims that the majority of crypto assets are securities and thus subject to strict regulation. While defendants can use parts of Ripple’s ruling in their favor, the SEC can also find reasons in it to keep its current strategy of regulation by enforcement.

The court decision is a partial summary judgment. The ruling can be appealed once a final judgment is issued or if the judge allows it before then. The case is in a pretrial phase, in which both Ripple and the SEC still have the chance to settle.


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