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Coinbase, Bittrex, Binance and others drop Ripple’s XRP token

Coinbase, Bittrex, Binance, and many other major crypto exchanges have dropped or suspended the XRP token in the wake of the SEC's legal action against Ripple Inc.

While Bitcoin and Ethereum have had their biggest weeks ever, Ripple’s XRP token has missed out on crypto’s bullish opening to 2021 and instead is being delisted or suspended by most of the major crypto exchanges.

Trading of XRP has been suspended globally at OKCoin, Coinbase and Beaxy. Meanwhile Etoro and Bitstamp have suspended trading in the United States only. For their part, Binance US, Bittrex, and have gone a step further – and announced they have or will delist XRP entirely in the US. Similarly, crypto market makers Galaxy Digital and Jump Trading have suspended support for XRP trading internationally, at the same time as major asset managers Sarson funds and Bitwise have entirely exited their XRP positions. initially annouced it would be suspending XRP trading from January 14th, but then quickly moved the date forward to Janaury 7th.

SEC suing Ripple

The delistings have come on the back of the SEC’s landmark legal action against Ripple Inc. In a press release published on December 22nd the SEC announced that it had filed an action against Ripple Labs Inc and two of its executives alleging that they raised over USD1.3 billion through an unregistered, ongoing digital asset securities offering.

The SEC complaint claims Ripple, Christian Larsen, the company’s co-founder, and current executive chairman; and Brad Garlinghouse, the company’s current CEO, raised capital through the sale of the digital asset XRP (XRP) to finance the company’s business. According to the SEC complaint the defendants failed to register their offer and sales of XRP, or, satisfy an exemption from registration. Ripple and its two executives have therefore been determined to be in violation of the registration provisions of federal securities law.

The SEC alleges that Ripple has been raising funds through the sale of the unregistered security XRP since the beginning of 2013. The 71-page lawsuit filed by the SEC claims Garlinghouse and Larsen "orchestrated these unlawful sales and personally profited by approximately $600 million from their unregistered sales of XRP". It also states that Ripple "received legal advice as early as 2012 that under certain circumstances XRP could be considered an “investment contract” and therefore a security under federal securities law.

It is also claimed that XRP payments were used by Ripple to support XRP’s trading markets. The SEC complaint states "In 2017 and 2018, Ripple also entered into agreements with at least ten digital asset trading platforms — none of which were registered with the SEC in any capacity, and at least two of which have principal places of business in the United States — providing for listing and trading incentives with respect to XRP. Ripple paid these platforms a fee, typically in XRP, to permit the buying and selling of XRP on their systems and sometimes incentives for achieving volume metrics." The lawsuit continues with examples of this behaviour including Ripple offering 17 million XRP to a US-based organization to list the asset as part of an offer that included a rebate on trading fees and incentive payments for top XRP traders.

Will Ripple settle with the SEC?

While the case will likely be the most significant SEC action in the history of cryptocurrencies, it should perhaps be viewed in the same light as the SEC’s actions across the wider financial sector. Indeed, the SEC brings major cases against established household name financial entities almost every week. In 2019 and 2020, for example, it also charged Wells Fargo, Morgan Stanley, Goldman Sachs, and dozens of other financial institutions with a wide range of offences. In some cases the settlements were over a billion dollars.

Some industry observers have suggested Ripple should just follow the lead of the establishment banks, settle the case and move on – thereby avoiding much of the damage a prolonged legal fight and exchange suspensions will undoubtedly do to the Ripple brand. However, Garlinghouse says that although that option was on the table, he has declined to take it up. "Chris and I had the option to settle separately," he said. "We could do that, and it would all be behind us. Not happening. That’s how confident Chris and I are that we are right. We will aggressively fight – and prove our case – through this case we will get clear rules of the road for the industry here in the U.S. We are not only on the right side of the law, but we will be on the right side of history."

Ripple Sued By SEC

Settling in other ICO cases has been commonplace for crypto projects with the ability to do so in recent years. Typically this has seen the offending projects refund early investors and pay a substantial fine. This would certainly be an option for Ripple, although the sums involved would be magnitudes greater than anything that has come before. The recent Telegram settlement is perhaps comparable. Finalized in June, it saw Telegram refund $1.2 bilion to purchasers of its GRAM token – and pay a fine of $18.5 million.

Although Garlinghouse and Ripple rightly maintain that FinCen, the US Treasury and the US Department of Justice have all declared in some form or another, that XRP is a currency, they are not the arbiters in this case. Breaches to securities law are enforced by the SEC and the SEC has never made such a statement about XRP.

At the same, Ripple Labs Inc is currently defending a number of class action lawsuits which allege the sale of the XRP token was promoted as a security.
The biggest civil case – Vladi Zakinov et al v. Ripple Labs el al – is still before the courts, although progress on the case has been slow due to the postponement of cases in California courts as a result of Covid-19. These cases have all argued that Ripple was promoted as a security.

The Zakinov case returned to courts on October 2nd 2020 where the US District Court Northern District of California granted in part, and denied in part Ripple’s motion to dismiss.

The court determined that some of the causes of action brought forward by the plaintiff could not serve as a basis for fraud claims. One of the actions dismissed was an interview with Brad Garlinghouse where he stated “digital assets are in a position to be more valuable than gold” and described XRP as “solving a real-world use case, it’s not just about speculators.” The plaintiff’s contended that this statement “conflated adopting enterprise solutions with adopting XRP,” the courts determined that this claim was unfounded. The courts said. “Whatever its merits, the assertion that XRP has utility stands independent of the usefulness of the software.”

What is Ripple the company?

Ripple has built a reputation as the ‘banks’ cryptocurrency.’ However, there is still a great deal of confusion as to what the Ripple ecosystem entails, how its payment solutions work and how these affect the value of XRP. Here, we shine a light on the different facets of the Ripple ecosystem — and what people are actually investing in when they buy XRP. ‘Ripple’ is a privately held company responsible for the creation, development, and deployment of assets and services like XRP and RippleNet. Registered in Delaware as Ripple Labs Inc, and operating in California as a "Foreign Corporation" (which in layman’s terms simply means it is registered out-of-state) the company rebranded to Ripple in 2015. Anyone asking ‘why buy Ripple?’ has misunderstood the structure of the organization, as retail investors cannot invest in Ripple Labs Inc. Although CEO Garlinghouse did famously float the idea of a Ripple IPO in 2020, the chances of that happening remain at slim to none.

The initial idea behind Ripple and its solutions is credited to Ryan Fugger and Jed McCaleb. In 2011, McCaleb began working on a digital currency which was able to achieve consensus without the mining process witnessed in bitcoin but rather would verify transactions when all members of the community were in agreement.

Since 2004, Fugger had been working on a monetary system which would be decentralized in nature and would facilitate the creation of value systems specific to a community. In 2012, McCaleb, working with well-known FinTech investor and disruptor Chris Larsen, engaged Fugger with the idea of combining their ideas in order to fill a gap in the market.

Ultimately Fugger gave leadership over to McCaleb and Larsen who subsequently co-founded OpenCoin in September 2012. OpenCoin, a private company, started working on the creation of a set of tools designed for use in the global context as a way to quickly and efficiently transfer value. At the time the set of solutions comprised the Ripple Protocol (RTXP) and the Ripple payment and exchange network.

OpenCoin held two funding rounds in 2013 and changed its name to Ripple Labs in the same year. Now going just by Ripple, the company is responsible for creating the digital currency Ripple (XRP) as well as RippleNet.

What is XRP?

As it is not possible for the average person to invest in Ripple, the question ‘should I buy XRP?’ is really the only one to ask. To answer that requires an understanding of what XRP actually is and what its potential use cases are.

XRP is the native cryptographic asset of the XRP ledger. In the cryptocurrency market, it is often referred to as Ripple because of its association with its parent company.

In response to the confusion common in the market regarding the distinction between the two, Ripple has enunciated the difference stating: "XRP is the digital asset native to XRP Ledger. The XRP Ledger is an open-source, distributed ledger. Ripple is a privately held company."

The XRP ledger is used to record the ownership and transfer of the XRP digital currency. In its initial days, the code was only accessible to the company. However, in 2013, Ripple Labs made the code open-source, giving the community some capacity to maintain the Ripple network. This was in response to concern regarding the centralized nature of the Ripple network at the time.

However, there are still concerns that the XRP ledger is overly centralized given that the Ripple company controls a large number of the validator nodes on the network. The company has pledged to gradually reduce this number. In October 2018, for example, Ripple controlled just under 50% of the XRP validator nodes, but this percentage has since declined to around 5% today, with only 7 of the 154 unique node list of trusted validators appearing to be owned by Ripple Inc.

The XRP unique node list

The XRP digital currency has a maximum cap of 100 billion units. In another major criticism of the project, the Ripple company still holds the vast majority (around 50 billion) in escrow, and in all about 55.9 billion XRP are not in circulation. This means that only around 45 percent of the digital currency is actually held by users, a stark contrast to the majority of major cryptocurrencies. This is a reality that will work against the company as it cannot argue it is the same as Bitcoin and Ethereum and should be similarly treated.

The XRP supply breakdown

Prior to the SEC action, XRP could be traded for US dollars on digital currency exchanges such as Coinbase, Binance US, Kraken, Bitfinex, Bitstamp and others – so fiat on-ramps and off-ramps were widely accessible. This will not be the case for the foreseeable future. While the use of XRP is essential to one of the services contained in the RippleNet ecosystem, it is currently not a requirement for the majority of them.

XRP features fast settlement times. Ripple claims it achieves finality in just four seconds and "can handle 1,500 TPS – a throughput on par with Visa and other card networks. This is because XRP was created specifically for enterprise use to provide liquidity for international transactions."

What is RippleNet?

RippleNet is a set of tools developed by Ripple designed to improve the global value transfer systems especially as it pertains to financial institutions and businesses. RippleNet is comprised of three payment solutions: xRapid, xCurrent, and xVia. The solutions were initially promoted individually but this appears to have confused the market and in October 2019 Ripple began promoting all three services under the single ‘RippleNet’ umbrella accessed via a single RippleNet portal.

In reference to RippleNet, the company has explained: "As a global payments network, RippleNet creates a modern payments experience operating on standardized rules and processes for real-time settlement, more affordable costs, and end-to-end transaction visibility. It allows banks to better compete with FinTechs that are siphoning off customers disappointed by traditional transaction banking services."

xCurrent is Ripple’s answer to the Swift system used by financial institutions to process transfers across borders. It allows banks to message each other in real-time and results in instantly settled cross-border payments. The software finds the quickest and most efficient pathway to settling transactions. xCurrent is currently at varying stages of deployment by a number of leading banks and remittance providers. However, it is important to note that it does not require the use of XRP and supports the use of fiat currencies.

xRapid is the logical continuation of the current service. xRapid works similarly to xCurrent. However, it requires the use of the XRP digital currency. XRP provides the liquidity needed in cross-border transactions and negates the need for costly Nostro accounts (the bank accounts that banks hold in foreign currency in another bank to facilitate foreign exchange transactions).

Lastly, xVia is the solution in the RippleNet ecosystem designed for payments between corporates, payment providers and banks. It is an API which connects users to the standardized RippleNet ecosystem. It offers specialized tools essential for businesses such as invoicing.

In its Q3 2020 Markets Report released on November 5th Ripple states that total XRP sales, net of purchases, was $35.84 million (USD) versus $32.55 million the previous quarter. Interestingly, the company explains that XRP is a preferred base currency for time limited arbitrage opportunities that may not be possible with other digital currencies. The report explains that XRP’s speed and low transaction costs help traders capture price differences between exchanges efficiently. The interexchange transfers for XRP can go as low as 18 seconds for some transfers (Bitstamp to HitBTC).

What are you investing in?

As mentioned above, retail investors cannot buy into Ripple the company, and only the XRP cryptocurrency can be purchased on exchanges. They are not the same thing.

While the increase in adoption of RippleNet has helped to cement XRP firmly in the top three digital assets in the market, it is important for cryptocurrency investors to be aware of the fact that XRP is only actively used by one of RippleNet’s payment solutions — and that is not the one that is seeing the most commercial user uptake.

Announcements about major institutions partnering with Ripple should be examined carefully, as typically these engagements are about payment processing technologies and do not involve the use of XRP. Many or Ripple Inc’s commercial deals now feature prominently in the SEC’s legal filing.

For anyone holding XRP because of its potential future value based on fundamental demand, the adoption of xRapid is a key metric to monitor, in addition to Ripple Inc’s focus on small to medium-sized enterprise payments and their potential requirement for XRP – as they will drive its real-world demand.

For traders preferring a ‘technical’ approach, XRP is a cryptocurrency like any other – with volatility characteristics similar to Bitcoin and Ethereum. Its ideal entry and exit points can be determined using technical analysis tools like Exponential Moving Averages, Candlesticks, Pitchforks, and the Ichimoku Cloud.

What is the Ripple buy back?

During XRP’s extended two year bear market, holders’ pain was compounded by the Ripple company and former executives regularly selling off portions of their large XRP holdings to create bouts of downward price pressure. This effect was set to be reversed, with Ripple announcing in its Q3 report that it would be buying back XRP from the market to support “healthy markets” and the group’s new Line of Credit initiative. It revealed in the new report that it has purchased some $46 million worth of XRP tokens in the third quarter of 2020.

Another factor in a recent price run is the announcement that the Flare network plans to airdrop 45 billion of its native ‘Spark’ token to XRP holders at a 1:1 ratio. The snapshot for the airdrop will occur on December 12th, any XRP address created before this date will receive free SPARK tokens. The Flare network platform allows users and developers to run smart contract services on XRP, using a virtual machine powered by Ethereum. A key goal of the Flare network is to create a two way bridge between the Ethereum and XRP networks.

In the lead up to the SPARK airdrop there has been a surge in new accounts created for the XRP ledger. 8068 new accounts were created on November 24th, a new high for 2020 and the most new accounts created in a day since the 2017 bull market.
Number of new Ripple Charts

Zooming out a bit and considering market conditions, XRP has likely benefited from spillover from a strong Bitcoin rally that started around a month before XRP began its aggressive turnaround. Historically, during Bitcoin uptrends, investors start looking for higher returns. Typically these are found in alt-coins, which are even more volatile than Bitcoin. The most obvious alt-coins with sizable market caps are Ethereum and XRP. The higher risk and potentially higher upside attached to altcoins mean investors naturally flock to them. All bets are off now for XRP, as the SEC legal action will dominate any XRP pricing narrative for the foreseeable future.

Brave New Coin provides complete technical price analysis for XRP every two weeks.


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