The US Securities and Exchange Commission (SEC) is reportedly considering changing the classification of $XRP, the cryptocurrency associated with Ripple. If this happens, $XRP would be treated as a commodity rather than a security.
This change could reduce legal restrictions on the asset, giving Ripple a better chance in its long-running legal battle with the SEC.
The move is said to be influenced by the SEC’s previous decision to classify Ethereum as a commodity rather than a security. $XRP shares some similarities with Ethereum, which may be why regulators are now reconsidering its status.
If $XRP is reclassified, it could also help clear up some of the uncertainty surrounding crypto regulations in the US and increase market confidence.
The SEC’s lawsuit against Ripple has been ongoing since 2020. The Commission originally claimed that Ripple had sold $XRP as an unregistered security, violating federal laws.
However, Ripple has maintained that $XRP is not a security but a tool for global transactions. Now, discussions are reportedly underway that could lead to a new regulatory approach for $XRP.
Why SEC might change the classification?
One of the main reasons the SEC is reconsidering $XRP’s status is its real-world utility. Financial analyst, Charles Gasparino, has pointed out that $XRP is widely used for transactions, making it more similar to a commodity than a security.
He compared it to Ethereum, which was initially sold through an Initial Coin Offering (ICO) but was later classified as a decentralised asset.
“If XRP follows a similar path, it could be reclassified and subject to less restrictive regulations”, Gasparino said.
The SEC’s evolving stance on crypto regulation is becoming more apparent. A recent example is Vermont’s decision to drop its lawsuit against Coinbase, one of the largest cryptocurrency exchanges.
The lawsuit initially claimed that Coinbase’s staking services violated securities laws. However, Vermont regulators have now changed their position, citing the SEC’s evolving approach to crypto oversight.
This change could set a precedent for Ripple’s case. If regulators are softening their stance on crypto assets, it might suggest that the SEC is open to re-evaluating its past decisions, including its strict approach to $XRP.
Ripple’s legal battle with the SEC has been one of the most high-profile cases in the crypto industry. Under former SEC Chairman, Gary Gensler, $XRP was categorised as an unregistered security, which led to its removal from several US exchanges.
Now, however, reports suggest that the SEC is reconsidering its stance, with discussions taking place about new regulatory terms for $XRP.
SEC Commissioner, Hester Peirce, has previously suggested that some digital assets should no longer be classified as securities.
Additionally, the SEC is reportedly working more closely with the Commodity Futures Trading Commission (CFTC), which oversees commodities in the US.
If $XRP is reclassified as a commodity, it would likely fall under the CFTC’s jurisdiction, leading to clearer legal guidelines for Ripple.
How this could affect Ripple?
If the SEC decides to classify $XRP as a commodity, the impact could be significant. One major benefit is that it would make it easier for $XRP-based financial products, such as exchange-traded funds (ETFs), to receive regulatory approval.
Commodities-based ETFs face fewer legal challenges than those linked to securities, which could boost investor confidence in $XRP.
Ripple has long argued that $XRP is not a security but rather a tool for real-time global payments. The company says its network allows for fast, cross-border transactions, similar to how commodities like gold or oil function in global markets.
If the SEC acknowledges this, it could lead to a reassessment of previous enforcement actions against Ripple.
Legal experts believe that if $XRP is reclassified, it could help Ripple regain lost ground in the US market. The ongoing legal uncertainty has made it difficult for institutions to adopt $XRP, but a commodity classification could remove many of these barriers.
Additionally, the SEC and Ripple are reportedly in settlement talks. Journalist Eleanor Terrett, who has been closely following the case, said that a resolution could be close. However, she noted that one of the key issues is whether Ripple will have to accept wrongdoing.
“Accepting the Torres ruling as it stands would mean that Ripple is essentially agreeing to admit to wrongdoing — but now the SEC itself is seemingly unsure whether any wrongdoing occurred”, Terrett reported.
Attorney, Jeremy Hogan, suggested that the SEC and Ripple might be negotiating a private agreement to settle the case without further legal battles.
Meanwhile, legal expert, MetaLawMan, speculated that Ripple could be deliberately delaying the settlement to remove certain legal restrictions, particularly those affecting institutional sales of $XRP.
There is also speculation that Ripple may be considering an initial public offering (IPO) in the future. If so, clearing $XRP’s legal status would be an important step before taking the company public.
Some analysts believe that the SEC may be willing to settle the case quickly by accepting a $125 million fine and moving on. However, if Ripple continues to push for better terms, the final agreement could be delayed.
With regulatory attitudes shifting and new frameworks being developed, the next few months could be critical for $XRP. If the SEC moves forward with reclassification, it could set a precedent for other cryptocurrencies, shaping the future of crypto regulation in the US.
For Ripple, this could mean an opportunity to expand its market presence and gain institutional support. A favourable ruling could also encourage other crypto companies to push back against strict regulations.
