Cryptocurrency Ripple [XRP] surged more than 75% last Friday after a court ruled the XRP token wasn’t a security.
Well, at least, it wasn’t in some cases.
There are a few nuances here I’ll go over shortly.
But the ruling was definitely a win for crypto proponents who had long argued the regulator was engaging in bad faith arguments and massive overreach.
To some extent, the judge agreed.
And the result put a rocket up the crypto sector. Many top 20 altcoins notched up double-digit one-day gains.
Cardano [ADA] shot up 21%, Polygon [MATIC] was up 25%, and Solana [SOL] surged 26%.
Similarly, crypto stocks such as Coinbase Inc [NASDAQ:COIN] and bitcoin miner Riot Platforms [NASDAQ:RIOT] made daily gains of 21% and 14%, respectively, after the ruling.
Whether this rally has legs or not remains to be seen.
But you have to remember the Securities and Exchange Commission (SEC) has been on the war path all year.
So to lose a key long-running case such as this was definitely a big moment for crypto assets.
But don’t forget this…
Despite the silence from most mainstream pundits, Bitcoin [BTC] has been the best-performing asset of 2023 so far.
Check it out:
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| Source: Twitter |
I know the gold bugs gets excited over 5% gains, but it’s nothing compared to digital gold!
Not only that, but bitcoin has been the best-performing asset almost every year for the past 13 years!
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| Source: Twitter |
And yet, your financial advisor is still telling you it’s too risky?
C’mon…
The only risk most advisors are worried about is their own career risk. And so far, it’s been safer for them to stay away from bitcoin, even though it’s been worse for their clients.
But that is starting to change.
And, as I’ll explain at the end, in my opinion, time is running out for you to get a decent bitcoin stack at reasonable prices before the flood gates open.
There’s literally a countdown clock ticking away in the background.
Anyway, before I go into that deadline, let me quickly explain more on the SEC versus Ripple case…
The Ripple ruling and why it matters
The US Court for the Southern District of New York made two important distinctions.
First, it ruled that the Initial Coin Offering (ICO) when Ripple first sold around US$728.9 million worth of XRP directly to institutional buyers, hedge funds, and other parties was an unregistered securities offering.
Thus, this part was in violation of securities law.
However…
The court also said that ‘programmatic sales’ of XRP through exchanges and algorithms did not qualify as securities because the SEC cannot definitively say speculative investors had ‘a reasonable expectation of profits to be derived from the entrepreneurial or managerial efforts of others’.
This is a very interesting nuance and could bode well for exchanges like Coinbase and Binance who are fighting separate cases against the SEC on charges of selling ‘unregistered securities’.
If the Ripple case is a sign of things to come, it means the ‘taps’ will be kept on for buyers and sellers of crypto on these two major exchanges.
Will there be repercussions for Ripple executives or other projects that engaged in such ICOs though?
I’m not sure…
There will most probably be more chapters to play out.
But for now, the sword of Damocles that was hanging over the head of the US crypto industry has been lifted.
And as I noted at the start, crypto investors are diving back in already…
The countdown
Despite this drama playing out in the crypto industry, the original crypto — bitcoin — has been silently having a fantastic year regardless.
As a recognised commodity (rather than a potential security), it was never under the same threat of enforcement action as other cryptos.
This made it a comparative safe haven of sorts in the crypto world.
But bitcoin’s great 2023 run was also due to broader macro issues of inflation, volatile currencies, and soaring sovereign debt.
Bitcoin is a hedge against such risks.
As 30-year bond market veteran Greg Foss puts it:
‘Global debt is a US$400T asset that is programmed to debase (it is a Fiat contract). Bitcoin is a sub-US$1T asset that is programmed as the most secure Store of Value ever created (math + code) Where do you think the smart money will flow?’
Indeed, that’s what we’re seeing start to happen.
Last month, there was a spate of Bitcoin ETF applications in the wake of BlackRock’s about-turn.
Check out the bullish timeline:
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| Source: Market Watch |
As you can see, there’s a mad rush to get Bitcoin ETFs approved ASAP.
Why?
Here’s the thing…
In April 2024, the supply of new bitcoin is set to fall by half.
This event, known as ‘the halvening’, occurs every four years or so and is programmatically baked in to the protocol.
Next year’s halvening will make bitcoin scarcer than gold in a stock-to-flow comparison.
Put this altogether…
Demand ramping up.
New supply going down.
A change of narrative on the legal front.
Three US presidential candidates openly pro bitcoin with an election year in 2024 too.
Tick, tock…
Good investing,
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Ryan Dinse,
Editor, Money Morning
