The one-two punch of a US Securities and Exchange Commission lawsuit and rejection by cryptocurrency exchange Coinbase have dashed XRP’s hopes of mainstream acceptance. The digital token’s price has fallen to about 20 cents, down from $3 in late 2017. There is no reason to expect a rebound.
XRP was created in 2012 by the founders of Ripple, the San Francisco-based payments company. It is described as a currency — crucial to facilitate blockchain payments. But XRP is not necessary for Ripple’s products and its use as a currency is limited. The SEC accuses Ripple, chief executive Brad Garlinghouse and co-founder Chris Larsen of selling $1.38bn of XRP to retail investors as an unregistered security.
What took the SEC so long? XRP is not the first token it has targeted. In 2017, it declared tokens offered by an organisation called The DAO were securities. But the SEC’s framework for such action comes from a 1946 Supreme Court decision that focuses on whether something is an investment with the expectation of profit through another’s work. Decentralised digital currencies are hard to categorise this way. The SEC’s tardiness in updating its own definition has ensured that the crypto industry remains a sideshow.
Even so, the case against XRP is unlikely to weigh on cryptocurrencies such as bitcoin, which are not linked to one company. More than half of all XRP is owned by Ripple. The SEC’s case focuses on the lack of information given to investors compared with that held by the company.
For true XRP believers there is always reason to hope. Ripple has vowed to fight. And incoming acting SEC chair Elad Roisman may prove more amenable than Jay Clayton, who once declared “every ICO [initial coin offering] I’ve seen is a security”. Ripple’s own business can survive, given its products do not require XRP. But its reputation has taken a hard hit. Its valuation, last set at $10bn, was tied to a digital token whose price was always hard to justify. Now it is impossible to do so.If you are a subscriber and would like to receive alerts when Lex articles are published, just click the button “Add to myFT”, which appears at the top of this page above the headline.