Ripple Labs, the company behind the leading cryptocurrency XRP which is regularly touted as the digital currency for banks and other financial institutions has been at the center of controversies lately, largely thanks to its legal tussle with the US financial watchdog, the Securities and Exchange Commission (SEC).
While the company has managed to win a few small battles against the SEC, the fate of the war still remains to be decided.
This begs the question, what happens if Ripple Labs loses the court case against the SEC? Will it be wiped out of existence? Will it tank the rest of the crypto world along with it? To answer these questions, let me first give a quick recap of the court case between Ripple Labs and SEC.
What’s the Fuss About?
Just while Ripple was riding high on the bull market of 2020, the SEC on December 22 dropped a lawsuit against the firm which significantly pulled down the price of the XRP coin.
In the lawsuit, the SEC argued that Ripple, the supposed ‘future of banking’ had broken the federal law by selling unregistered securities.
In specific, while the RippleLedger is the distributed consensus ledger that powers the Ripple Network — a global payment network adopted by various banking institutions the world over — the utility of XRP the coin still remains shrouded in mystery.
Not surprisingly enough, the effects of the SEC lawsuit proved to be devastating for Ripple, and in specific, for the XRP cryptocurrency.
As you can infer from the chart below, the price of XRP crashed from close to $0.58 on December 21 to as low as $0.21 on December 31 which essentially means the lawsuit halved XRP’s total market cap of about $26 billion to $13 billion.
Following the lawsuit, a number of leading cryptocurrency trading platforms such as Coinbase and several others started to delist XRP which further jolted the XRP army. Not to mention the great dent in Ripple’s reputation in the industry that the lawsuit inflicted.
At the time, Brad Garlinghouse, the CEO of Ripple Labs, said:
“It was a rough holiday for sure. I’ve always viewed myself as one of the good guys in Silicon Valley who does what’s right — only to have the US government assert in an inflammatory way you’re playing dirty.”
Ripple Fights Back
Unlike the vast majority of entities sued by financial regulators that typically remain quiet during the legal warfare, Ripple Labs chose an entirely unexpected strategy in that is continually engaged in verbal fights with the regulator over social media.
In addition, Ripple Labs has also continually bolstered its legal team which includes former executives from the public agency it is fighting against. What’s more, the company has also gone on record to say that should any need arise, it would not shy away from taking the case to the Supreme Court.
On the other end of the spectrum, the case is an important one for the SEC as it stands to lose more than Ripple Labs in the form of its authenticity and credibility. Should the agency emerge victorious, it would likely set a precedent for all other companies in the crypto industry and clear the regulatory environment to a great extent.
On the contrary, however, if the SEC ends up losing the battle, it would not only mean a huge victory for Ripple Labs but also permanently damage the credibility and power of the top US financial watchdog.
Current Status and Speculations
The court case of Ripple vs SEC is still keeping the lawyers busy on both sides with the latest development being Ripple refusing to share details of some millions of Slack messages with the SEC on account of them being ‘not uniquely relevant.’
However, the SEC remains firm in its stance and says that Ripple’s refusal to share Slack messages is unexpected as the company did not display any objection to doing so until as late as July 30.
Responding to this, Ripple Labs claims that handing over terabytes worth of messages would likely take months to complete and would involve a significant cost.
Further, in June 2020, a reputed attorney within the XRP community Jeremy Hogan noted that with the 50-day extension for the discovery of the messages, there is close to nil possibility of any potential settlement until the case is closed.
To conclude, the court case seems to be crawling at a snail’s pace due to the lack of regulations and precedents in the crypto industry. However, whatever the judge’s decision be, the closure of the case would leave a permanent mark and impact on the future regulatory discourse of the digital assets industry.
For better or for worse, that remains to be seen.