What happens when the largest cryptocurrency exchange refuses to list the third largest cryptocurrency? Much of this has been related to the management and strategy behind Ripple, and Coinbase’s hesitancy to align themselves with such a controversial coin.
We are facing new questions as Coinbase gives signals that they may finally be considering listing XRP on their exchange. The biggest question is if this will change how the SEC views XRP, and if this is the tipping point that may get it deemed a security.
XRP Not a Security
For Ripple to be a security, it would have to have to be proven to represent ownership in a company. This is problematic for a lot of reasons, but mostly because it would require heavier regulation than if it were viewed as a commodity.
The often repeated distinction by Ripple CEO, Brad Garlinghouse, is that is that Ripple and XRP are two separate entities. You can think about it as the difference between the currency a company uses and the profits of a company. They are related, but definitely not the same.
As Mr. Garlinghouse has said, securities give you rights to governance, dividends and ownership of a company. XRP sells presents none of these benefits.
However, the argument is that many investors view them as being so intimately connected that when Ripple announces a new partnership, the price of XRP increases. This is where the marketing may have been deceiving, and why many view XRP as being a shadier coin, regardless of its massive market capitalization.
The Outcome Doesn’t Matter
You might be wondering why it is such a big deal if XRP is deemed a security or not. The main change would be that many cryptocurrency exchanges would be less likely to want to handle it due to the drastically stricter regulations that are present on securities and protecting investors in securities.
This shaky legal status has been compounded by many unsubstantiated claims coming out a community that many would refer to as “ideological”, and that might actually be making things worse.
There is an alternate view as to what would happen if XRP was declared a security. Once declared a security, XRP could feasibly be listed on major equity exchanges (something some investors were itching for last year). This would result in a continued run-up in the price as investors would have increased access to the so-called “security”.
What It All Means
With this recent news regarding Coinbase, many think that XRP is finally going to become listed, after they have had so many false alarms over the last two years. The recent XRP news caused a significant run-up in the price of XRP, which was to be expected. The bigger question about whether it will be branded a security may have much more to do with the liquidity and regulation behind XRP.
The fact of the matter is that XRP will continue to function regardless if Ripple is in operation. The larger debate of whether investors should tie their investment theses for utility tokens to the profitability of the overall company is still yet to be settled.
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