Ripple was one of the most popular altcoins of 2017 due to the founders, Chris Larsen and Brad Garlinghouse, making frequent television and podcast appearances to promote the cryptocurrency.
The popularity continued into 2020 when the Securities and Exchange Commision (SEC) filed a lawsuit against Ripple. The lawsuit claims that Ripple illegally sold unregistered securities to the public by selling XRP for the past eight years.
Those are the basics of the lawsuit. This article will go into detail on the chances of Ripple winning their lawsuit with the SEC, which will include why the lawsuit was filed and some interesting tidbits from the case.
The Chances of Ripple Winning The Lawsuit
Ripple actually has a fairly high chance of winning their lawsuit with the SEC. It did not look like they had any chance of winning the lawsuit when it was first filed.
However, Ripple has a lot of money that gives them access to very good lawyers who can formulate good arguments. To further that point, the case against Ripple appears to be more politically motivated than based on actual violations of securities laws.
Here are some of the reasons we believe Ripple will win the lawsuit.
Ripple Fails The Howey Test; Ethereum Passes It
The biggest point that the lawyer team for Ripple is using in the case relates to something called the Howey Test. The Howey Test is a set of criteria established by the Supreme Court in 1946 in a case called SEC v. W.J. Howey Co..
The details of that case are not particularly important.
The important thing is the criteria the Supreme Court set to determine whether a company is offering a security. A security must pass the Howey Test in order to be considered a security. The criteria include the following points:
- Investing money into a project…
- …With a common goal…
- ….An expectation of profit…
- …From the work of others.
It’s a fairly simple test. In the case of Ripple, it does not actually pass the Howey Test because buying XRP does not actually fund development of the project. The development of the blockchain was done long before Ripple Labs actually existed.
The development of the blockchain also did not involve raising any money.
Basically, the entire lawsuit falls apart because purchasing XRP is not a common goal.
To further this point, the Ripple team has been stating that Ethereum does pass the Howey Test and has not had any SEC lawsuit. Ripple contends that the lawsuit is mostly political due to some interesting conflicts of interest from the SEC Chairman that filed the lawsuit.
Ripple Hired Former SEC Chairwoman Mary Jo White
Next, Ripple has a large amount of money and is using it to pay for an all-star team of lawyers. Losing the lawsuit would make purchasing Ripple on a US based cryptocurrency exchange impossible.
There would likely be implications for exchanges based in other countries if they accept US Dollar deposits because that is just how things work with the US.
Anyway, Ripple hired former SEC Chairwoman Mary Jo White to be on their team of lawyers. White also served as the District Attorney of Southern New York during the Clinton administration.
Our point with this is that White has connections in the SEC that could make the case go more smoothly. More importantly, Ripple has a lot of money invested in this case.
The government obviously has more resources than Ripple, but Ripple is not some small company or person that the SEC can bully around like they often do in cases like this.
The SEC Looks Weak If They Lose
Finally, the SEC has a lot to lose in this case. In fact, they have about the same to lose as Ripple, just in a different way than Ripple.
If Ripple wins the lawsuit, then two things will happen that are terrible for the SEC:
- They will look weak losing a large, high profile lawsuit. The SEC does not like losing lawsuits.
- The winning argument Ripple makes will be added to case law for future cases. This will weaken the SEC’s chances of winning future lawsuits against cryptocurrency projects.
The above two points, especially the second one about case law, are why many people in the industry believe that Ripple will win their lawsuit with the SEC.
Now, when we say win that could mean an out of court settlement with the SEC. That actually appears to be the most likely outcome the SEC wants because the case appears shaky.
Of course, an out-of-court settlement always raises questions about the case in the public eye, but it would get Ripple out of the news.
The Outcome of The Ripple Lawsuit?
The chances of Ripple either settling or winning the SEC lawsuit are high. A win appears more likely because Ripple appears to not have much interest in settling with the SEC due to the strong case.
Things could obviously change with the lawsuit. But it does not appear that the SEC can make a strong argument that Ripple Labs violated the Howey Act.
Is Ripple a Good Investment?
Ripple does appear like they will win the lawsuit and that likely makes it a good investment in the short to medium term. This is because institutional investors have mostly avoided Ripple after the lawsuit was filed because the future of the company is too uncertain.
The price has mostly been driven by retail investors, which is a little crazy because it has been taken off many exchanges (ie. Coinbase).
With that in mind, you can definitely expect a price surge if Ripple wins and probably if Ripple settles. A bigger boost will be seen when Coinbase and other exchanges relist Ripple on their exchanges.
Anyway, the problems with Ripple do not stem from this lawsuit by the SEC. The problem the cryptocurrency community has with Ripple is that it’s not really a decentralized cryptocurrency anymore.
It’s mostly used by banks to transfer money internationally without paying ridiculous fees. The coin is then marketed to an older demographic as a cryptocurrency investment.
For one, it’s not even really a cryptocurrency. It’s more like a token that banks use for transferring money that retail investors can also purchase for transfers. Of course, very few people actually use Ripple for transfers – it’s almost exclusively purchased as an investment.
That sums it up for the chances of Ripple winning their lawsuit.
It’s likely they will win it and the price will surge at the announcement of that news. A price increase due to winning a lawsuit does not say anything about the validity of Ripple as a cryptocurrency, though.
In that regard, Ripple can barely be considered a cryptocurrency. You can think of Ripple as the banker’s response to Bitcoin – a centralized project that has somehow received the “altcoin” label.