The ongoing legal battle between the U.S. Securities and Exchange Commission (SEC) and Ripple Labs has escalated to a pivotal phase. The SEC is pursuing a $1.95B fine against Ripple for supposed violations of securities laws. What impact might this have on XRP?
Despite Ripple Labs' victory in its July court case against the SEC, it appears the battle was far from over. The regulator remains determined, introducing further claims.
According to the proposal, Ripple is to pay $1.95 billion to the U.S. Treasury within 30 days of the court's definitive verdict. This sum breaks down into $876 million in civil penalties and $198 million in legal costs.
This hefty fine might compel Ripple to liquidate a considerable amount of its XRP reserves, currently estimated at over 40 billion coins held in escrow, as per Ripple's API data.
For more on how the XRP escrow system operates, we've provided an in-depth explanation here.
The news has sent shockwaves through the cryptocurrency community, particularly among XRP holders concerned about the potential sale of Ripple's reserves to satisfy the fines.
What Lies Ahead for the XRP Price?
Given XRP's current market price of around $0.63 as of March 31, 2024, Ripple would need to liquidate approximately 3.12 billion XRP to comply with the SEC's demands.
This potential mass sell-off could drastically affect the cryptocurrency's price. The abrupt introduction of XRP tokens to the market might far exceed demand, potentially leading to a drastic price drop. Consequently, this would necessitate the sale of even more XRP.
Attorney Jeremy Hogan was one of the first to speculate on the potential asset sales from the company's escrow accounts. He suggested that selling a significant volume of XRP could result in a price decrease, adversely affecting retail holders.
It's noteworthy that the price of XRP declined specifically after this speculation was shared. Even on the day the SEC's decree was announced, the asset's price was initially on the rise.
XRP Price Dynamics. Source: Coingecko
Further indirect evidence that Hogan's post could be seen as manipulative is data from the analytics platform Santiment. This data indicates an increase in the number of addresses holding between 1 million to 10 million XRP from 1,537 to 1,565 between March 17 and 28. Therefore, while whales seem to remain optimistic about the asset's growth, the sell-offs appear to be driven by a subset of alarmed retail holders.
Ripple's Battle Continues
It's important to keep in mind that the SEC's proposed order is not yet final. The company is expected to challenge the fine in April. While the legal dispute could potentially have a short-term negative impact on the XRP market, it's the panic sentiment that could prove to be more detrimental.
Investors should pay close attention to the developments in the legal case and Ripple's response to the SEC's proposal in the upcoming months. This, rather than posts on social media, will be decisive for the future of XRP.
