Notes 7/14: Bitcoin Price, XRP Ruling

It was a time for profit-making in crypto markets yesterday and this morning.

Bitcoin price surged past the $31,000 mark after a New York court judge ruled that programmatic sales of Ripple’s native token XRP at cryptocurrency exchanges were not securities. It crested at $31,700 before retreating. The price of Ripple’s XRP skyrocketed by 96% to $0.81 and the overall market capitalization for cryptocurrencies shot up by $73.8 billion.

Among the biggest gainers are tokens that had been beaten down earlier this year because they were named in lawsuits filed by the Securities and Exchange Commission (SEC). These include the likes of SOL (Ethereum Layer 2 Solana’s token), MATIC (another layer 2 token issued by Polygon), and Cardano’s ADA. Their prices rose by 34.7%, 19.6% and 23.7% respectively. LDO, the governance token for staking platform Lido, was another winner, having risen by 23.5%.

In short, the crypto ecosystem surged despite fast-shriveling liquidity. As of this writing, things are back to normal. Bitcoin is changing hands for $30,114.32, down almost 4% since a day earlier. Ripple’s XRP is on a downward trajectory as well. It is trading at $0.68, down 12.5% from 24 hours earlier.

Why Did Prices Rise?

Bitcoin price has been in a holding pattern in the $30,000 range for most of last week. Even positive inflation data day before yesterday failed to shake the cryptocurrency from its stupor. It is not clear why bitcoin investors became enthusiastic at the judge’s ruling regarding XRP.

Among the numerous illegal and illiquid tokens that proliferate crypto, bitcoin is the only one that has been clearly classified as a commodity by both the SEC and the Commodities Futures Trading Commission (CFTC). This means that its status as an investable asset is not affected by yesterday’s ruling.

The price jump for other tokens is equally mysterious. Yesterday’s judgement is not final and leaves a big door open to the SEC for further litigation against tokens. Moreover, it reiterates primacy of the Howey Test – a test established by the Supreme Court to identify the status of investment contracts – in determining whether crypto tokens are securities or commodities. Crypto exchanges have argued that the test is outdated and needs revising.

With its ambiguous phrasing and interpretations, the test’s quicksand can easily swallow up numerous crypto tokens if the SEC chooses to bring action against them.

XRP’s False Victory

A narrative, shackled to price movements, is necessary to disguise profitmaking in crypto’s illiquid ecosystem. And so, news reports and Ripple have categorized yesterday’s ruling as a “partial victory” for the cryptocurrency ecosystem. It is a false and temporary categorization.

XRP is not exactly a poster boy for crypto. It is not permissionless and was pre-mined and distributed to select stakeholders. It is mostly illiquid in crypto markets.

The New York judge did not pass a summary judgement and allowed the case to go to trial, meaning it is far from decided whether XRP is a security or not. She also distinguished between XRP sales to investors, which were deemed securities, and programmatic sales to retail investors, which were not. The distinction between these sales makes the situation for categorization of tokens murky and confusing. Again, future hearings of the case may change the judge’s ruling yesterday.

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