Doc's Daily Commentary

Mind Of Mav

Why Ripple’s SEC Fight Could Be Positive For Crypto

A week ago, the US Securities and Exchange Commission (SEC) was looking into the possibility of suing Ripple, one of the top five cryptocurrency ventures in the world.

Now, it looks like “looking into” has become “taking legal action,” as the governing financial agency filed charges today against the firm for allegedly ignoring securities advice and selling unregistered tokens. The announcement caused the altcoin’s value to fall by about 50% in the space of a week — wiping out the impressive gains seen in November and December. Some exchanges even announced they were delisting XRP altogether. Ripple’s CEO Brad Garlinghouse has vowed that he isn’t going down without a fight, so expect fireworks as 2021 gets underway.

With the court showdown now official, we have to wonder: what are the larger ramifications of this?

First, let’s cover what’s actually being litigated, and the scope of how this applies to the overall crypto space.

What Is The Issue?

The SEC’s complaint is similar in nature to another one filed by XRP investors against Ripple last year. That complaint charged Ripple founders with “an intent to defraud and deceive” investors by holding an unregistered sale of securities. While the SEC’s complaint does not explicitly mention fraud, it alleges that Chris Larsen, Ripple’s co-founder, and Brad Garlinghouse, the company’s CEO, personally profited to the tune of $600 million by selling their XRP stash during upswings in its prices.

“Defendants continue to hold substantial amounts of XRP and – with no registration statement in effect – can continue to monetize their XRP while using the information asymmetry they created in the market for their own gain, creating substantial risk to investors,” the complaint states. Overall, Ripple raised $1.38 billion from investors and traders in cryptocurrency markets without submitting the proper documentation required for such sales, it claims.

The complaint also elucidates on the centralized process for creation and issuance of XRP. A total of 100 billion XRP were created in 2012 and divided between the company, which later created an escrow account to periodically release the currency in crypto markets to maintain its value, and its founders. Such arrangements violate the provisions set out in the “Howey Test,” a 1946 Supreme Court ruling that is used by the SEC to determine if a given token is a security or not.

One of the big problems with Ripple – and one of the factors probably working against it at the time of writing – is that many of the XRP units in circulation are still owned by the company, thereby suggesting that Ripple is a centralized company. The big issue behind bitcoin, Ethereum, and several other forms of crypto, is that they have been largely distributed to the public at this point, and no single individual or company owns a large majority of the units in question.

However, Ripple still possesses roughly 60 percent (more than half) of the world’s XRP units. Thus, the ones who primarily stand to gain the most out of XRP are its creators. This knocks any ideas of decentralization for Ripple to the side. In a statement, Stephanie Avakian – SEC Enforcement Division director – explained:

Issuers seeking the benefits of a public offering, including access to retail investors, broad distribution and a secondary trading market, must comply with the federal securities laws that require registration of offerings unless an exemption from registration applies.

Naturally, Ripple’s CEO Brad Garlinghouse is contesting these words and rushing to defend his company and its assets, stating:

To be clear, this is all based on their illogical claim that XRP is, in their view, somehow the functional equivalent of a share of stock.

In addition, Ripple lawyer Michael Kellogg of Kellogg, Hansen, Todd, Figel & Frederick believes that the lawsuit initiated by the SEC has no basis. He mentions:

This complaint is wrong as a matter of law. Other major branches of the U.S. government including the Justice Department and the Treasury Department’s FinCEN have already determined that XRP is a currency. Transactions in XRP thus fall outside the scope of the federal securities laws. This is not the first time the SEC has tried to go beyond its statutory authority. The courts have corrected it before and will do so again.

That, I think, is where some positive outcomes could be from this.

Given Ripple’s prominent business relationships and XRP’s market capitalization, the SEC’s case could have far-reaching implications. A flurry of moves by players in the crypto ecosystem since last week is indicative of the case’s seriousness. Luxembourg-based cryptocurrency exchange Bitstamp has discontinued trading and deposits in XRP, and other exchanges are reportedly considering similar moves.

On the surface, that may seem scary or cause uncertainty, but I believe this is the sign of the new SEC prerogative to come as the leadership changes: regulatory clarity across the board.

After all, the SEC does not make the laws; it enforces them. In a sense, they’re the police of the securities world. However, police need to have effective and clear laws in order to enforce them, and the same is true here. The jurisprudence from this case could wind up bringing the regulatory clarity that the overall crypto space has been needing for years now, and would go a long way to instilling confidence in larger institutions that they can pursue digital asset adoption.

Time will tell how things shake out, but to me the wall is coming down on the arbitrary rules that have confined the space for too long. I look forward to embracing that new Standard.

The ReadySetCrypto "Three Token Pillars" Community Portfolio (V3)

Add your vote to the V3 Portfolio (Phase 3) by clicking here.

View V3 Portfolio (Phase 2) by clicking here.

View V3 Portfolio (Phase 1) by clicking here.

Read the V3 Portfolio guide by clicking here.

What is the goal of this portfolio?

The “Three Token Pillars” portfolio is democratically proportioned between the Three Pillars of the Token Economy & Interchain:

CryptoCurreny – Security Tokens (STO) – Decentralized Finance (DeFi)

With this portfolio, we will identify and take advantage of the opportunities within the Three
Pillars of ReadySetCrypto. We aim to Capitalise on the collective knowledge and experience of the RSC
community & build model portfolios containing the premier companies and projects
in the industry and manage risk allocation suitable for as many people as

The Second Phase of the RSC Community Portfolio V3 was to give us a general idea of the weightings people desire in each of the three pillars and also member’s risk tolerance. The Third Phase of the RSC Community Portfolio V3 has us closing in on a finalized portfolio allocation before we consolidated onto the highest quality projects.

Our Current Allocation As Of Phase Three:

Move Your Mouse Over Charts Below For More Information

The ReadySetCrypto "Top Ten Crypto" Community Portfolio (V4)

Add your vote to the V4 Portfolio by clicking here.

Read about building Crypto Portfolio Diversity by clicking here.

What is the goal of this portfolio? 

The “Top Ten Crypto” portfolio is a democratically proportioned portfolio balanced based on votes from members of the RSC community as to what they believe are the top 10 projects by potential.
This portfolio should be much more useful given the ever-changing market dynamics. In short, you rank the projects you believe deserve a spot in the top 10. It should represent a portfolio and rank that you believe will stand the test of time. Once we have a good cross-section, we can study and make an assessment as to where we see value and perhaps where some diamonds in the rough opportunities exist. In a perfect world, we will end up with a Pareto-style distribution that describes the largest value capture in the market.
To give an update on the position, each one listed in low to high relative risk:
SoV/money == BTC, DCR
Platforms == ETH, XTZ
Private Money == XMR / ZEC / ZEN
DeFi == MKR / SNX and stablecoins
It is the most realistic way for us to distill the entirety of what we have learned (and that includes the RSC community opinion). We have an array of articles that have gradually picked off one by one different projects, some of which end up being many thousands of words to come to this conclusion. It is not capitulation because we all remain in the market. It is simply a consolidation of quality. We seek the cream of the crop as the milk turns sour on aggregate.

Current Top 10 Rankings:



Move Your Mouse Over Charts Below For More Information

Our Discord

Join Our Crypto Trader & Investor Chatrooms by clicking here!

Please DM us with your email address if you are a full OMNIA member and want to be given full Discord privileges.