Ripple Is Not a Security: Markets Rejoice
Ripple Is Not a Security: Markets Rejoice
Summary
Yesterday a US judge ruled XRP, the cryptocurrency created by Ripple Labs, is not a security (with nuance). This led to a rip in crypto prices, especially in alt-coins (everything except Bitcoin). This likely begins a period of increased regulatory certainty for crypto in the US, something that the industry has been waiting for.
So XRP isn’t a security… unless you’re an early institution
With the SEC breathing down crypto’s neck in the US, the Ripple securities ruling has been heavily anticipated by the market.
Gary Gensler even dodged answering if Ethereum, a crypto blue chip, was a security during an SEC hearing. The posture of the SEC had not instilled confidence in crypto markets, to say the least.
There is nuance to the judge’s ruling though:
XRP sold on exchanges is not a security.
However, XRP sold to institutions in fundraising rounds is deemed an unregistered security.
The ruling was clear though that XRP, the token itself, is not a security.
Pre-ruling uncertainty had an impact on crypto markets, especially apparent in volumes. Major market makers even exited or spun down areas of their operation earlier this year. Will this give the confidence for their return? Time will tell.
The market rallies, with alt-coins especially benefitting
Bitcoin dominance measures the share of Bitcoins market cap relative to the entire crypto market cap. The below chart shows Bitcoin dominance fell after the XRP news, meaning that other cryptos rallied more than Bitcoin. This outperformance of non-Bitcoin cryptos is largely due to market beta, but also the potential for a more certain regulatory environment for cryptos who could have been potentially labeled securities.
But when you zoom out, the relative momentum is still in favor of Bitcoin this year.
This is a big moment for the crypto industry
Over this year, crypto activity has been driven off US soil into jurisdictions offering attractive environments for crypto talent. Excluding potential macroeconomic shocks, this ruling will likely provide a tail wind for cryptocurrency in the US. It will especially be beneficial for developers and those looking to build businesses in the digital assets industry within the country.
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