The entire market for cryptocurrencies knew only one direction in recent weeks: up! However, one asset has lost value, even though it had risen massively just a few weeks earlier. What was the reason for this rollercoaster ride?
Spark token airdrop caused an XRP rally
Initially, XRP had started into a real rally at the end of the year. It was triggered by an airdrop of the so-called Spark token. The idea behind it was relatively simple. Everyone who held XRP on a certain date and fulfilled some technical requirements received the token as a gift on a pro-rata basis.
Therefore, the price of XRP increased massively, because many investors also wanted to have something as a gift and wanted to stock up on XRP before the deadline. However, this rally did not last long. On the one hand, because the snapshot finally took place and on the other hand, because there was simply bad news to report.
SEC sues Ripple and two founders
The SEC is the U.S. Securities and Exchange Commission and thus regulates the financial market. On Dec. 22, the agency announced that it was filing suit against Ripple and two of the company's founders.
The SEC accuses Ripple of offering an unregistered security on the market. The basis for this is the fact that Ripple originally developed XRP, holds much of XRP itself in the company's assets, and has sold XRP to investors in the past.
Based on the individual circumstances, the SEC considers these sales to be an offering of securities rather than a sale of crypto.
Is XRP a security?
If the SEC wins in court, then the logical consequence could be that XRP could be classified as a security. This would initially make the US market inaccessible because an exchange license would be required to trade XRP. However, most providers do not have licenses to be allowed to offer securities.
Another fear is that other countries might share the SEC's assessment. This is because regulatory issues in the U.S. often have direct consequences for the global market because the location is very significant.
Due to the uncertain situation, some providers and market makers have stopped trading XRP either entirely or for US customers. Due to these overall circumstances, a large portion of investors panicked and there was heavy selling of XRP, leading to the massive price collapse.