Back in 2020, the U.S. Securities and Exchange Commission (SEC) sued Ripple, alleging that the company broke securities laws when it sold its XRP (CRYPTO: XRP) cryptocurrency to investors. The case was partially resolved in August 2024, but it isn't officially over yet.
Ripple hasn't been the SEC's only target. The regulator still has lawsuits against a number of crypto companies, including two of the world's largest exchanges, Binance and Coinbase. However, a sea change is underway now that Donald Trump is president because he has often advocated for the industry.
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In fact, a federal court, responding to a request by Binance and the SEC (led by the Trump-appointed acting chairman), just approved a 60-day pause in the case, and there is speculation Ripple's case could be next. Here's what it means for XRP.
Image source: Getty Images.
Why has Ripple faced so much scrutiny from the SEC?
Ripple created a payments network called Ripple Payments (formerly RippleNet), which lets banks settle money transfers with one another directly, even if they don't use the same infrastructure. That means international payments can be settled instantly between a bank that uses the SWIFT network (for example) and a bank that doesn't. Without Ripple Payments, that same transaction would take days.
XRP is designed to standardize those payments. For instance, a Spanish bank might send XRP tokens to a U.S. bank instead of euros, bypassing currency exchange fees and other costs. Then the bank can cheaplyconvert the XRP into the fiat currency of their choice.
XRP has a total supply of 100 billion tokens. As of this writing, 57.7 billion are in circulation, and the remaining 42.3 billion are held by Ripple, which releases small amounts each month as needed to meet demand. The SEC argues that XRP should be classified as a financial security like a stock or a bond, meaning Ripple (as the issuer) would have to operate under a strict set of regulations.
Bitcoin hasn't faced the same scrutiny from the SEC because it's completely decentralized. It has a fixed total supply, and there is no person, company, or government capable of changing it or issuing more coins. Simply put, it doesn't meet the definition of a financial security.
The SEC's case against Ripple was partially resolved in August, when a judge ruled that XRP might be a security only in certain circumstances, such as when it's issued to institutions. It might not be a security when it's used in transactions or traded on crypto exchanges. Ripple had to pay a fine of $125 million, but the SEC appealed the decision, which in theory could tie the parties up in court for several more years.
A new regulatory regime
Trump was an advocate for the crypto industry on the campaign trail, throwing his support behind radical ideas like establishing a strategic U.S. Bitcoin reserve. He is also in favor of deregulation, not just for crypto but in general.
Shortly after the Nov. 5 election, Trump said he would appoint Paul Atkins as SEC chairman. Atkins is currently the chief executive officer of Patomak Global Partners, a consulting firm specializing in financial services regulations and compliance. He is also the co-chairman of the Token Alliance, a crypto advocacy organization, so he's a big supporter of the industry.
Atkins hasn't been confirmed by the Senate just yet, so he isn't officially in the job. However, Trump has appointed Mark Uyeda to serve as acting chairman in the meantime. He is more aligned with the president's vision than the previous chairman, Gary Gensler, who stepped down in January.
Under Uyeda's leadership, the SEC recently formed a crypto task force to craft regulations and review existing legal cases, perhaps including the one against Ripple.
A potential win for Ripple and XRP, but there is a caveat
In theory, resolving its case with the SEC would give Ripple more operational freedom. That could pave the way for more XRP issuance, which could lead to greater adoption, which is the key to creating sustainable value.
But there is one very big caveat. Banks don't actually need to use XRP to use the Ripple Payments network -- they can use fiat currencies and still benefit from the network's rapid transfers. That might explain why XRP is still trading below its record high from 2018, even though the cumulative number of transactions processed by Ripple continues to climb.
Therefore, the value of XRP might be determined by speculators more than by fundamental demand, which makes its future very difficult to predict. Remember, the token lost more than 90% of its value shortly after peaking at a price of $3.40 back in 2018, and there is nothing preventing that from happening again.
As a result, while a friendlier regulatory environment is certainly good news for Ripple and XRP, there is no guarantee it will translate into further gains for investors.
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Anthony Di Pizio has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Coinbase Global and XRP. The Motley Fool has a disclosure policy.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
