The Securities and Exchange Commission (SEC) has made recent moves in its litigation against XRP (XRP -0.86%) and parent company Ripple. In this episode of "The Crypto Show" on Motley Fool Live, recorded on Feb. 9, Fool.com contributors Chris MacDonald and Jon Quast discuss why a potential resolution is good news for investors, whether the case is decided for or against the cryptocurrency.
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Jon Quast: Let's talk about XRP a little bit, or I should say Ripple is the cryptocurrency, right, Chris, and XRP is the company in charge of the cryptocurrency?
Chris MacDonald: I think it's actually the other way around.
Quast: OK. [laughs]
MacDonald: Folks used to call XRP Ripple because it's Ripple Labs. It's like Solana and Solana Labs. XRP is the cryptocurrency that operates RippleNet, which is Ripple's product, which is produced by Ripple Labs. XRP and RippleNet essentially are cryptocurrency that are focused on large-scale institutional money transfers. So the idea is much like the SWIFT network. If you are a large corporation or a large financial institution and you want to transfer money across borders, SWIFT payments, they picked up the majority of the market share right now in terms of large-scale transactions. What Ripple and XRP are looking to do via RippleNet is to disrupt this. Right now, they have a growing business. It's taking off, but it's still a very small percentage of the global large-scale money transfer business. That being said, the interesting piece with Ripple and XRP is that because these transactions are so large and because a lot of their business does in some way touch the U.S., the SEC has looked at Ripple specifically and it's been one of the first cryptocurrencies that the SEC has gone after explicitly in terms of looking at whether or not XRP is security. This is the crux of the issue with Ripple. It's been in a downtrend over the past year. A lot of that is related to a December 2020 lawsuit that the SEC filed. The lawsuit alleged that XRP and individuals in Ripple issued unregistered securities offerings over a seven-year period from 2013 to 2020 that amounted to 1.3 billion. [laughs] Apparently, the founders of Ripple took home something like $600 million, which is a pretty decent chunk of change via various token offerings. This lawsuit has proceeded slowly due to COVID and other issues. There's been a number of halts to the proceedings. But over the past week, an interesting development has essentially caused XRP to surge almost 50 percent over the past seven days, and that is that the judge ruled that the documents that are sealed in this case be open to the public. This is really interesting for two reasons. First, it opens up what the SEC is looking out to the public and obviously with the massive following that XRP has, it'll be interesting to see how the public reacts to what the SEC is looking at with this. I think the other thing that's interesting is by the judge unsealing these records, which essentially was at the request of XRP, it looks like the judge might be in favor of XRP right now or at least the market is pricing in some sort of positive resolution. But the other piece of this is that positive or negative, a resolution is, I think, generally being perceived as overall a good thing, and the reason for that is investors and the market in general don't like uncertainty. Whether this is a fine or some sort of reprimand and it's a negative outcome for XRP, ultimately, it might be a good thing. Investors might remember what happened to Alibaba after they got a $2.8 billion fine by the Chinese government that the stock rallied something like 10 percent in a day for that reason. Markets don't like uncertainty. It looks like this might be getting wrapped up, but it's been a long saga. For Ripple, XRP, and investors in this space, it looks like the end is nearing and I think there's some positive sentiment because of that.