NEW YORK (REUTERS, BLOOMBERG) - Cryptocurrency XRP dived on Wednesday (Dec 23) after the US Securities and Exchange Commission (SEC) charged associated blockchain firm Ripple with conducting a US$1.3 billion (S$1.7 billion) unregistered securities offering.
XRP, the third-biggest cryptocurrency by market value, plunged almost 40 per cent to about 26 cents, bringing its total weekly losses to more than 50 per cent and wiping out around US$10 billion in market value.
The SEC maintains that Ripple's chairman, co-founder and former CEO Christian Larsen and current CEO Brad Garlinghouse "failed to register their offers and sales of XRP or satisfy any exemption from registration." Larsen and Garlinghouse also orchestrated personal unregistered sales worth US$600 million, the SEC alleged.
Ripple has rejected the charges, saying XRP is a currency and does not need to be registered as an investment contract. Garlinghouse called the case "an assault on crypto at large," in a message to employees that was posted on the company blog. The SEC didn't want to foster innovation in the digital asset space, he said.
Financial regulators around the globe are still grappling with how to regulate Bitcoin, XRP and rival cryptocurrencies. Markets are watching closely for regulatory developments that could determine whether cryptocurrencies make the leap from a niche to a mainstream asset.
XRP, which often moves in tandem with Bitcoin, had rocketed in November to hit its highest level since 2018 as a rally in cryptocurrencies gathered pace.
The Bitwise 10 Crypto Index Fund (ticker BITW) - which has surged nearly 180 per cent since its Dec 9 launch - liquidated its position in XRP, which comprised 3.8 per cent of its holdings, according to a Wednesday statement.
Not only is Ripple in "hot water" and unlikely to beat the SEC's lawsuit, but XRP may become more difficult to trade and transact in should US marketplaces be unwilling to list it, according to a Bloomberg Intelligence (BI) report.
"At stake in the Dec 22 suit may be the ability to trade XRP and more than a billion dollars, though settlement for a fraction of that is also possible," wrote BI analysts Elliot Stein and Ben Elliott. "Ripple also risks a court ruling that XRP is a security, which would subject it to stricter SEC rules that may curb transactions as US virtual marketplaces may be reluctant to list XRP due to the risk of facilitating the sale of a potentially unregistered security."
Unlike Bitcoin or Ether - which the SEC considers currencies and are decentralized - XRP's value was mainly linked to Ripple products, with the firm attempting to influence supply and demand for the token, the analysts wrote.
Though Bitcoin - the largest holding in BITW - held onto slight gains, the fund dropped roughly 9.5 per cent.
At least one digital-asset trading platform has moved to delist XRP in the wake of the SEC suit. Hong Kong-based OSL said it has suspended trading in the cryptocurrency.
The SEC said in July 2017 that companies raising money through the sale of digital assets must adhere to federal securities laws. BI expects that Ripple will answer the agency's complaint next quarter, and that a decision could come in early 2022.