XRP (XRP -5.18%), the third-largest cryptocurrency in the world, has been on a fantastic run since Donald Trump won the presidential election on Nov. 5, with the token up more than 400%. The tougher regulatory regime under former President Joe Biden's administration arguably affected XRP more adversely than any other cryptocurrency. That's because the Securities and Exchange Commission (SEC) sued Ripple, the company behind XRP, alleging that the company and two leading executives sold unregistered securities.
While the outlook has gotten more favorable for XRP, the SEC has appealed a ruling in the lawsuit. But with the change in administration and other notable events, is XRP on the brink of finally putting this lawsuit in the rearview mirror?
A four-year legal battle
In 2020, the SEC sued Ripple, co-founder Christian Larsen, and current Chief Executive Officer Brad Garlinghouse, alleging the three parties sold $1.3 billion of XRP tokens in an unregistered securities sale in 2013. The SEC also alleged that Larsen and Garlinghouse conducted personal XRP unregistered sales of $600 million.
The crypto industry has watched this case closely because it brings up a dispute over how cryptocurrencies are classified and which regulator has oversight. The SEC believes many cryptocurrencies should be classified as securities because they are traded as speculative assets. The SEC has jurisdiction over securities. However, crypto proponents hope to avoid strict securities laws and have cryptocurrencies classified as commodities, which are overseen by the Commodity Futures Trading Commission.
In 2023, a federal judge effectively sided with Ripple, Larsen, and Garlinghouse, ruling that when they sold XRP to institutional investors, the tokens were securities. However, XRP was not a security when sold to retail investors through exchanges, the judge ruled. The SEC, led by Gary Gensler at the time, appealed parts of the ruling, which is where things effectively stand today.
Since Gensler stepped down and the pro-crypto Trump administration took over, many believe that the SEC will either withdraw its appeal, settle the case, or lose in court. Recent events could support this. The SEC recently asked a judge in a joint request to halt its lawsuit against the large crypto exchange Binance and founder Changpeng Zhao for 60 days, following the establishment of an SEC crypto task force. The motion stated, "The work of this task force may impact and facilitate the potential resolution of this case."
The SEC had sued Binance and Zhao for misleading investors and lying about trading volumes, among other infractions. The U.S. Department of Justice also sued Binance for anti-money laundering violations. Binance pled guilty to those allegations and agreed to pay a $4 billion fine.
"Delaying a case where the CEO pled guilty to criminal charges and the SEC has an employee dead to rights admitting violation of the securities laws clarifies the SEC's shifts on crypto may culminate in a full dereliction of duty," former SEC official Corey Frayer told Reuters. John Reed Stark, another former SEC official who oversaw the SEC's Office of Internet Enforcement, wrote in a post on X he expects the SEC to dismiss the case on "highly favorable terms."
An end to the appeal would be bullish
Although there is still uncertainty around the XRP appeal, I think more details could emerge over the next few months, especially if Trump's nomination to lead the SEC, Paul Atkins, is eventually approved. Atkins, a former SEC commissioner, led a consulting firm that helps clients navigate the crypto and financial sectors.
It has historically been uncommon for the SEC to dismiss a high-profile pending case, so the request for pause in the Binance lawsuit is significant. If the appeal is dropped and the case ends once and for all, this could pave the way for an XRP spot exchange-traded fund, which would likely increase access and ultimately ownership of the token.
Investors can certainly invest in XRP, but I would still keep positions small and more speculative. Some of these positive events are likely priced into the token at this point. Additionally, XRP is volatile, and its continuing gains ride on the momentum of the latest crypto bull market.
