The rise of Bitcoin in 2009 rang in a new era - the era of digital currencies. Greeted by tech-driven investors as the “next big thing”, crypto investing raised concerns amongst regulators, due to the decentralised and speculative nature of digital assets.
Today, fifteen years down the line, financial watchdogs have yet to agree on the security or commodity status of digital currencies. In an effort to outline a regulatory framework for crypto activities, legislators have advanced a set of rules known as the “Howey test”.
In light of the Howey test, a security is defined as an investment vehicle that cumulatively meets the following conditions:
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An investor - could be an individual or a corporate entity
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In a joint enterprise
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With the expectation of generating profit
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Through the efforts of a third party
As regards cryptos, the situation becomes more complex because all ICOs involve investments in a joint enterprise (the ICO project) for a profit to be realised through the efforts of a third party (the company behind the ICO project). Based on this premise, the majority of ICOs could be considered securities.
Beyond the HODL, a summary of the XRP case
In 2017, the SEC established that tokens of The DAO, a popular crypto community, were securities. This decision set the regulatory expectation that most ICOs fall within the meaning of the Securities Act of 1933.
Furthermore, the SEC has been scrutinising crypto lending facilities in recent years. In 2020, this culminated with the lawsuit against Ripple Labs, the company behind XRP, a cryptocurrency aiming to enable fast cross-border transactions.
Following a battle stretching over years, in 2023, judge Analisa Torres issued a partially favourable resolution for the company, ruling that the XRP token was not a security as long as it is traded through digital asset exchanges. In cases where it was offered to institutional investors, it would become a security.
The SEC, however, pursued Ripple further, seeking to discourage the company to stop offering XRP on the grounds of the token being a security. This meant that XRP should have fallen under a different regulatory regime, in line with the 1933 Act.
In reaction to the news, the XRP price jumped 73% on 13 July 2023*, when the announcement was made. But the SEC - Ripple battle continued, taking an intriguing turn once the notorious “Hinman Documents” were released.
Drafted by former SEC corporate finance director Bill Hinman, said documents highlight the ambivalent status of cryptocurrencies such as Bitcoin and Ethereum.
According to Hinman, the two major cryptocurrencies may have entered the crypto space as securities, but once they become truly decentralised, they convert to something akin to commodities.
Notwithstanding this arguably advantageous development for Ripple, in August 2024, a federal judge in the Southern District of New York fined the XRP issuer $125 million for allegedly defrauding institutional investors by selling its tokens as unregistered securities.
The SEC, who pushed for a $2 billion penalty against Ripple, filed an appeal with the Second Circuit Court of Appeals a day before Bitwise Asset Management Inc. submitted a filing to the SEC for an ETF investing directly in XRP, according to a Bloomberg report. XRP plummeted more than 8% on the news.
A positive end to the XRP saga?
Yet, there is light at the end of the XRP tunnel. With the US President-elect Donald Trump’s victory against Democratic Vice President Kamala Harris, the vilified cryptocurrency has seen a spectacular price upsurge.
As crypto investors priced in a more relaxed crypto regulatory approach under the new Trump administration, XRP hit a record high at $2.90 on 3 December, before pulling back to $2.59 (close).
With the nomination of Paul Atkins to head the SEC, cryptocurrencies could enter a new era. The President-elect’s friendly stance towards digital assets has broadly had a positive impact on the blockchain-driven market.
Meanwhile, crypto industry insiders remain positive about the future, which could potentially witness further crypto upswings, with XRP likely to be among the top gainers.
Explore the XRP dynamics with a regulated broker
Libertex, one of the CFD industry leaders, takes pride in offering traders a wide range of tools for their trading.
Through its platforms, including MT4, MT5, and an advanced proprietary trading infrastructure, Libertex offers access to a broad selection of CFDs on cryptocurrencies, including XRPUSD.
Libertex’s platforms are accessible across devices, offering a smooth trading experience. The diverse array of trading tools and real-time analytics allow traders to make informed decisions and position themselves in the market with greater precision.
Moreover, the broker’s comprehensive knowledge base featuring courses, tutorials, and videos, offers traders the nuggets of information they need to explore the dynamics of XRP CFD trading.
As a regulated broker, Libertex adheres to strict standards of regulatory compliance. To ensure data integrity, the broker applies advanced SSL encryption, shielding its clients’ sensitive information against any malicious interference.
In line with its regulatory standards, the broker also keeps all traders’ funds safe in segregated accounts with top-tier banks worldwide, ensuring that its clients’ capital is always protected.
In addition, Libertex is well-known for its low fees and spreads across all underlying assets. This empowers traders to build and diversify their CFD portfolios at a low cost, making Libertex the go-to trading platform for traders everywhere.
To explore the broker’s offering, visit Libertex.
*Note: The percentages referenced in this article are calculated based on the XRPUSD prices available on the Libertex platform one day before and after the news releases, close-to-close.
Risk Warning: CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 78% of retail investor accounts lose money when trading CFDs with this provider. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money.
