XRP’s Market Cap Fell 63% After SEC Lawsuit. Here's How That Happened

XRP's market cap has fallen by $16 billion, or 63%, since news of the US Securities and Exchange Commission’s lawsuit against Ripple Labs came to light on December 21. 

The SEC's lawsuit alleges that Ripple Labs has raised $1.3 billion in unregistered securities since 2013 by selling XRP to investors, including those in the US.

Blow by crippling blow, the lawsuit collapsed the price of the coin after crypto exchanges suspended trading of the coin and crypto funds liquidated assets. Here’s how that happened.

A Tale of Woe

XRP had profited from Bitcoin’s bull run. On Thursday, December 17, the coin was riding high at a price of $0.6 and a market cap of $27 billion. 

But when Ripple spread news of an upcoming SEC lawsuit at 1 am on December 21, all hell broke loose. 

Ripple CEO Brad Garlinghouse, who the SEC named as a defendant in the lawsuit, alongside Ripple Labs and its co-founder, Christian Larson, told Fortune that the SEC was about to file a complaint against them that would allege they violated securities laws by selling XRP.  

“It’s not just Grinch-worthy, it’s shocking,” Garlinghouse told Fortune. “It’s an attack on the entire crypto industry and American innovation.”

The coin had dropped to $0.5 by the time the SEC filed its lawsuit the next day. The complaint, as promised, alleged that Ripple, Larson and Garlinghouse held illegal, unregistered securities sales of XRP. 

The complaint has a huge knock-on effect on the entire crypto industry. If the SEC could convince a judge that XRP constitutes an investment contract under US law, it could sue crypto companies that trade XRP or exchanges that facilitate the sale of the coin on similar grounds. 

The price of XRP dropped swiftly following the SEC's announcement, made worse when several crypto companies announced they would cut ties with XRP or cease trading of the coin. 

“Effective immediately, Beaxy Exchange is halting all XRP derived trading activity. Withdrawals will remain enabled until further notice,” a Beaxy press release said on December 22, 2020. 

Beaxy was one of the first exchanges to delist the coin, and others followed shortly thereafter. On December 23, 2020, the price of XRP closed at $0.26 after Galaxy Digital, Jump Trading, Bitwise, CrossTower and OSL had made similar announcements.

On December 26, 2020, the price of XRP had recovered to $0.31, but news that Bitstamp would halt trades and deposits of XRP for US customers in January plunged the price of the digital currency down once again, this time to $0.29. 

"In light of the recent SEC filing against Ripple Labs Inc., which alleges that XRP is a security, we are going to halt all trading and deposits of XRP for our U.S. customers on January 8 2021 at 9 PM UTC," Bitstamp said in a press release.

London-based B2C2 was the next exchange to prevent US investors from trading XRP. The price of XRP fell to $0.28 after news broke of B2C2's decision on December 27.

While Ripple Barks, Exchanges Bite

A massive blow was dealt on December 28, when two US crypto exchanges, OKCoin and Coinbase, announced they would suspend trading of XRP trading. 

OKCoin said in a statement, "As the lawsuit proceedings take place, we have determined it is the best course of action to suspend XRP trading and deposits on OKCoin effective January 4, 2021." 

Hours after OKCoin announced suspending XRP trading, Coinbase, one of the largest crypto exchanges in the world, also announced it would suspend trading of XRP for its US customers from January 19.

Paul Grewal, Chief Legal Officer, said in a statement on the Coinbase blog, "In light of the SEC's lawsuit against Ripple Labs, Inc, we have made the decision to suspend the XRP trading pairs on our platform." 

At the time of writing, XRP has a total market capitalization of $9 billion and trades at $0.19, according to metrics site CoinGecko.

It will be interesting to see whether further suspensions will continue to collapse the price of the coin. How low can it go?