Ripple’s XRP Ruling Clarified & Examined in Latest Q2 Update

A recent ruling declared that XRP, the digital asset associated with Ripple Labs, is not a security. The latest court decision favored Ripple after its legal tussle with the US SEC began in December 2020.

In its second-quarter market report for 2023, Ripple clarifies common misconceptions about the ruling. It also noted the extent of XRP holdings the company has.

Ripple Calls SEC ‘Misguided’

The Court vindicated Ripple’s long-standing assertion that XRP is not a security in a July ruling. Ripple claims that the decision adds XRP to Bitcoin (BTC) as one of the only two digital assets in the US explicitly deemed not to be securities.

However, following a recent judgment in the Terra case where the judge rejected the premise of XRP security status based on sales mechanism, some may contest the claim.

In addition, it clarified that Ripple’s sales of XRP on exchanges, sales by executives, and various distributions to developers, charities, and employees are also not considered securities. However, Ripple emphasized that some sales conducted by written agreements were viewed as investment contracts and hence categorized as securities.

The Court’s ruling was a major blow to the Securities & Exchange Commission, though the agency is planning to challenge the ruling. However, Ripple has characterized the agency’s approach as a “misguided campaign” and “a strategy of intimidation and misinformation.”

Misconceptions Clarified by the Company

In its Q2 2023 Report, Ripple addressed six misconceptions about the ruling. Ripple emphasized that the Court’s decision unequivocally declares XRP is not to be deemed a security. It also noted that the Court distinguished between XRP as a digital token and XRP sold with promises of investment returns. However, the company underlined that the asset itself remains a non-security.

Ripple also debunked the claim that a “share of stock is always a security, so it makes no sense that certain transactions in XRP are securities and others are not.”

Ripple explained that the existence of an investment contract must be determined on a transaction-by-transaction basis, unlike traditional shares of stock.

The company also underlined that the Court’s ruling is jurisdictional, ending SEC’s regulatory scope. It said, “Consumers need protection, but not all roads lead to the SEC. If the SEC’s overreach has exposed a regulatory gap, that gap is not for a court to fill (and certainly not for the SEC to fill without legal authority).”

With that, Ripple also asserts on business after the ruling. It noted that most of its customers and counterparties are outside the U.S., noting that Ripple’s foreign businesses continue to operate in jurisdictions with clear regulations.

Lastly, Ripple explained the Court’s ruling on its fair notice defense. The company accepted that the Court ruled against Ripple’s fair notice defense concerning “Institutional Sales.” However, it also said the Court left the defense for other types of transactions open in its ruling.

In this regard, Ripple said, “This provides a roadmap for others in the industry to assert the defense if the SEC makes similarly baseless theories.”

The Extent of Ripple’s XRP Holdings

While the company said that the SEC’s use of Ripple’s quarterly reports makes them reevaluate the content of its reports from now on, it nonetheless revealed the extent of its XRP holdings.

Ripple noted that it holds two types of XRP. One is readily available in their wallets, and the other is under on-ledger escrow lockups. The latter will be gradually released each month over the next 42 months. Ripple said it cannot access it until the scheduled releases.

As of March 31, 2023, Ripple held a total of 5.506 billion XRP, with 42.8 billion XRP under escrow. By June 30, Ripple’s XRP holdings had increased to 5.551 billion, and the XRP under escrow decreased to 41.9 billion.

At press time, XRP is ranked the fifth largest crypto by market cap. It is currently oscillating near the $0.70 level with a market capitalization of $36.6 billion.

After witnessing a steep surge immediately following the ruling, it has shown a muted performance on the daily and weekly charts.