All the leading cryptocurrencies saw a decline after there was an unanticipated rally which was triggered by favorable ruling in Ripple-SEC case. All the renowned cryptocurrencies (Bitcoin, Ethereum, Dogecoin) fell on Sunday after huge win for Ripple and the overall crypto industry.
Crypto shorts saw a significant liquidation after the court ruling which favoured Ripple Labs. As per the ruling, the XRP token, which is related to the company, does not constitute a security.
24 hours after the ruling, ~80,950 traders saw their positions liquidated. As a result of this, total liquidation value came in at $285.50 million. As per the data from CoinGlass, ~75% of such liquidations were short positions. Bitcoin amounting to $50.11 million and Ethereum worth $38.11 million were liquidated.
Single largest liquidation order took place on Bitmex, which involved XRP tokens worth $2.82 million. In just 12 hours after the ruling, total liquidation value came in at $58.23 million. Out of this, ~$32.96 million made up for short positions being liquidated.
Short liquidation- Why this is important to know
Short liquidation, aka short squeeze, can be considered as one of the risks related to the cryptocurrency-leveraged trading. This happens if an investor or trader is not able to meet the margin requirements for their position, mainly because price of an asset saw a sharp increase.
Just having a basic knowledge of it can help traders in minimizing exposure to such liquidation. At the same time, they can take advantage of significant lucrative opportunities when it comes to cryptocurrency trading.
SEC v/s Ripple Labs: What was the case about?
The SEC filed a lawsuit against Ripple Labs in which it was alleged that the company, including its top executives, made an unregistered securities offering worth $1.3 billion. This case against Ripple led to a summary judgment in favor of Ripple Labs. In the judgement, it was stated that sale of XRP DOES NOT establish an offer of investment contracts. This ruling marks an important turning point in the ongoing legal battle between both the parties. Experts in the field of cryptocurrency expect that this can set a precedent for upcoming cases relating to cryptocurrencies and classification of cryptos as securities. As and when the implications unfold, the entire crypto industry will watch this closely.
As of now, a NY-based judge gave a ruling for Ripple which determines that XRP, a cryptocurrency to which Ripple is closely associated, in itself is “not necessarily a security on its face.” Ripple had been engaged in this legal battle for the previous three years regarding allegations from the agency. Ripple decided to dispute such claims as the company insisted that XRP can’t be considered as a security. It is more like a commodity.
However, the ruling was not a total win for Ripple. Even though the judge stated that XRP was not a security, they mentioned that some sales have qualified as securities transactions. For example, ~$728.9 million of sales to institutions have qualified as securities. The judge stated that there was a common enterprise and profit expectations.
How Ripple suffered in the past
As a result of this case, business of Ripple suffered as the company lost at least 1 customer and investor. MoneyGram, the U.S. money transfer giant, broke the partnership with Ripple in early 2021.
During the same time, Tetragon, which is a U.K.-based investor who backed Ripple, decided to sold stake back to Ripple. This happened after there was an unsuccessful try to sue the company for redeeming cash.
Some aspects in favour of Ripple
Blockchain startup Ripple is optimistic about the US banks in the country adopting XRP when it comes to cross-border payments. This optimism stems from the landmark ruling which determined that the token was not a security. As a result of this, the firm continues to expect to initiate discussions with American financial firms regarding using On-Demand Liquidity (ODL) product, which makes the use of XRP for the purposes of money transfers, in the third quarter.
Experts in the cryptocurrency community view that this ruling might provide financial institution customers or some other potential customers comfort. They might consider to at least come in and discuss about the problems they see in their respective businesses. These problems will be real-world problems related to moving value between borders without incurring hefty fees. Crypto community expects that this quarter might end up generating conversations in the US with customers.
Ripple has been attracting most of its business from outside of the U.S. Ripple’s customers and its revenue come from outside of the U.S. This is true despite of the fact that the company has a lot of employees residing in the US. The company employs more than 900 employees globally and around half of them are based in the U.S. XRP refers to a cryptocurrency which Ripple utilises to move money between the borders. This has been categorised as the 5th largest cryptocurrency in circulation, with a market cap of more than ~$37 billion.
The company utilises the token in the form of “bridge” currency when conducting transfers from one fiat currency to another. It solves the problems of requiring pre-funded accounts on the other end of the transfer to wait for processing of the money. According to Ripple, XRP can process money movements in just a fraction of a second.
According to Stu Alderoty, Ripple’s general counsel, the judge found that earlier sales which were made directly to institutional buyers had attributes of a security. As a result, they should have been registered. However, he added that Ripple’s business will not be affected by this component of the ruling. This is because the company’s customers are primarily based outside of the U.S.