Cryptocurrency Startup Ripple’s Future Hinges on SEC Case

Brad Garlinghouse, the chief executive of Ripple, was last year publicly contemplating at the World Economic Forum in Davos, Switzerland, an initial public offering for the San Francisco startup.

The company had just raised about $200 million in a round of venture funding led by Tetragon Financial Group , with a $10 billion valuation. The value of its signature product, a cryptocurrency called XRP, had fallen over the previous year. But Ripple was poised to rebuild the infrastructure for cross-border trades, Mr. Garlinghouse said, promising that its future was bright.

A year later, an IPO is off the table. Instead, Ripple’s future hinges on a judge’s ruling in a civil lawsuit filed in December by the Securities and Exchange Commission.

Regardless of the outcome, the case is expected to become a key precedent for how U.S. regulators craft rules and laws covering cryptocurrencies. It also highlights a broader truth about most digital currencies: Beyond the two largest, bitcoin and ether, most of the hundreds of others have struggled to find a utilitarian value beyond speculation.

At the heart of the SEC’s suit is a debate about XRP, a bitcoin-like digital asset created by Ripple’s founders that would grow to become the world’s third-largest cryptocurrency. It was designed to be part of a network that would help banks cut expenses in cross-border transfers. The related software, however, never gained traction, the SEC alleges, leaving XRP without a clear purpose, other than to funnel sales to Ripple.