The Securities and Exchange Commission claims that Ripple Inc. has violated federal security laws by not making adequate disclosure on XRP.
The SEC has filed a lawsuit against Ripple and its digital currency XRP, after which it suffered a heavy loss in value on Wednesday. The federal agencyâ€™s complaint has made XRP lose a substantial value on Wednesday, by which it slid to almost $0.35, which is a drop of 20% from the previous day.
XRP, the third-largest cryptocurrency fell sharply on Tuesday, when US regulators made a charge against its company, Ripple Inc. The value of XRP, which was at two-year highs, fell sharply on Wednesday after the lawsuit.
Rippleâ€™s XRP is Violation of Security Laws towards Investor Protection
According to the lawsuit, the SEC says that CEO Garlinghouse and co-founder Christian Larsen are charged for selling XRP for a period of seven years, beginning from 2013. The executives have not registered the cryptocurrency XRP as a security. Without proper disclosure of information, investor protection is lost, say authorities.Â Investors require more information and transparency regarding the investment made in the cryptocurrency. Cryptocurrencies are already under scrutiny as they do not have proper regulations and hence, losing investor confidence as safe investments.
The SEC claims that the company has sold its securities worth more than $1.3 billion and that most of the fund has reached the private accounts of its chief executives Garlinghouse and Larsen. The amount has been raised through an unregistered security offering, says the US SEC. Issuers have to comply with the security laws, says an SEC officer. The executives have sold their digital assets worth almost $600 million, personally.
This lawsuit is expected to bring unlicensed cryptocurrencies to follow proper guidance issued by the federal security laws. â€śProper disclosure of information has to be provided to protect investors, to which they are entitled toâ€ť, says deputy director Marc P. Berger of the SEC Enforcement Division.
XRP Executives Deny Claims
Rippleâ€™s CEO Brad Garlinghouse had issued a statement stating that the SEC had filed a lawsuit against its company. The company has sold XRP, its digital currency, and this has come under the SEC scanner. However, Garlinghouse says that the SEC was â€śfundamentally wrongâ€ť and was ready to fight in court over the issue. The executives claim that XRP is a currency and not security. They claim that XRP is a virtual currency and the SEC cannot file a suit against them, as XRP does not require registration as an investment contract.
Rippleâ€™s XRP Allows Fast Payment
For cross-border money transfers, XRP is mostly used. Â XRP can be sent immediately without a central intermediary and is used to send currencies among different countries quickly. The decentralized technology helps to make payments within a few seconds. It is considered to make a far quicker payment than other cryptocurrencies. Â XRP is ranked third after Bitcoin and Ethereum in cryptocurrency value. XRPâ€™s market value is at $20 billion.
Bitcoin and Ethereum are cryptocurrencies created through a process of mining, and it is an ongoing process. But XRP was created as 100 billion units immediately. This factor makes it a security and not a currency, says the SEC.
BTH and ETH
The cryptocurrency market recovered in December and Bitcoin moved higher, to almost touch $24,000 on Wednesday. Bitcoin has bounced off its Monday lows of $21,900 and saw a sudden surge on Wednesday to below $24,000. However, with the SEC imposing a lawsuit on Rippleâ€™s XRP, the bitcoin may also move downwards in tandem with the XRP, feel analysts.
$23,000 will remain a crucial level to watch for, as many investors have purchased the BTC at this level. If the BTC surges past this area, it may move upwards. If not, it may move to $21,000.
The second-largest currency Ethereum has crossed resistance at $600. But it has to move past $620 to see further upside momentum. It has strong support at $525.
If XRP fails to hold on to $0.32, it may slip downwards to $0.3 and further down to $0.25. XRP has to recover and move past $0.45, which is its psychological resistance.
A few altcoins like Synthetix moved higher with a 35% upside move on Wednesday. Tether, another cryptocurrency, has now overtaken Ethereum in value on Wednesday, making it the third-largest cryptocurrency.
The pandemic has brought in new users, and the value of cryptocurrencies is increasing. Bitcoin moved to fresh highs in December, moving to $24,000, while Ethereum moved to $670 in the middle of December.