Ripple Effect: What The XRP SEC Lawsuit Says To New Crypto Projects

Last night, Ripple CEO Brad Garlinghouse revealed his company’s expectations that they would be slapped with a lawsuit from the United States Securities and Exchange Commission in relation to the XRP cryptocurrency token.

Word spread throughout the crypto community quickly, causing widespread speculation over what this could mean for the greater industry, Ripple executives, and other projects. Here’s what the alleged SEC lawsuit says to new crypto projects considering launching under the increased regulatory scrutiny that’s clearly coming.

Ripple CEO Reveals SEC’s Plan To Sue Company Over XRP Token Sales

When Bitcoin was created, its primary goal was to act as the first fully decentralized, non-sovereign digital currency. The concept worked so well in execution, an entire industry was birthed in its blockchain-based image.

Several other spinoffs like Litecoin were built, and new protocols were created that capitalized on the blockchain technology Bitcoin brought with it.

Ethereum and XRP were among the two early coins created that differ greatly from the first-ever cryptocurrency, giving each of them a unique use case and value proposition. It has allowed these tokens to become the top-ranked altcoins in the number two and number three spots in the top ten cryptocurrencies by market cap, respectively.

Related Reading | Ripple Network Activity Shows XRP Has Lost Its Spark Post-Airdrop

The use case and target audience isn’t the only way these assets differ, there’s also a large discrepancy in distribution and decentralization.

If an asset is sufficiently decentralized – for example, Bitcoin – it is considered a commodity and falls under CFTC jurisdiction. If a crypto project launches and a share of the tokens are held by founders and executives related to the cryptocurrency, then there’s a strong possibility that it could be deemed a security under the SEC’s Howey Test.

According to Brad Garlinghouse, Ripple CEO, the SEC is ready to slap the firm with a lawsuit related to selling unregistered securities: the company’s XRP token. The case, when it becomes public knowledge, will be a pivotal moment for the cryptocurrency industry, and it could shape how crypto projects launch in the future.

xrp ripple crypto sec

The altcoin will remain bullish despite the lawsuit if support can hold | Source: XRPUSD on CoinPrice.Watch

What Scrutiny Over The Altcoin Deemed Security Could Mean For Future Crypto Projects

When Ripple Labs first created XRP, there was next to zero guidance from any financial regulatory entity on how to go about it. Over time as the young industry has developed, we’ve learned how Bitcoin and Ethereum are considered commodities and the coins themselves are free from any SEC-related jurisdiction.

Moving forward, the outcome of this case and the fact that the lawsuit happens at all could forever change how crypto projects are launched.

Project founders, teams, and the companies themselves cannot be the primary holder of the coins issued. Initial distribution at launch must be fair to ensure the asset is well-decentralized.

Related Reading | SEC Bitcoin Blunder: Regulator Accuses John McAfee Of “Scalping”

Proof-of-work coins without a pre-mine, are largely expected to pass the securities sniff-test, and pass off as a commodity instead.

Sadly, the crypto industry has responded to the Ripple lawsuit with cheer rather than a challenge. How regulators handle even a case against a disliked company and demonized executive team, could have an impact on the rest of the space for years to come.

It also again, appears to put American investors at an extreme disadvantage, as the SEC’s jurisdiction would only prevent US citizens from owning XRP, allowing the rest of the global population to gobble up share.

In the rare, off chance that banks use XRP someday, only US investors will be left behind due to an unregistered securities lawsuit being issued in 2020 in relation to a coin created in 2012. The regulatory entity had eight years of adoption to step in, and at this point, the impact could cause more harm than good.

Featured image from Deposit Photos, Charts from CoinPrice.Watch
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