Coinbase, one of the largest and most influential cryptocurrency exchanges in the United States, announced today that it will halt trading in XRP on Jan. 19.
“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,” Coinbase Chief Legal Officer Paul Grewal wrote in a Dec. 28 blog post on its website. For now, XRP trading “will move into limit only,” he said.
The action comes in the wake of the U.S. Securities and Exchange Commission’s Dec. 22 lawsuit against Ripple, the international payments company closely associated with XRP.
The SEC claims that XRP is a security and Ripple’s ongoing sale of some 14.6 billion XRP worth $1.38 billion was an illegal unregistered securities sale. Ripple has denied this, and has said it intends to fight the lawsuit vigorously.
The suspension will not affect customers access to their XRP wallets, and they will be able to deposit and withdraw from them, Coinbase said. Customers will remain eligible for the Spark airdrop, and Coinbase will continue to support XRP in the Coinbase Wallet and on Coinbase Custody.
Grewal added: “Coinbase remains committed to being the most trusted platform for trading cryptocurrency. We strive to provide our customers with access to a broad set of assets, all of which are evaluated against our Digital Asset Framework to assess factors like security, compliance, and the project’s alignment with our mission of creating an open financial system for the world.”
The Coinbase trading halt will come fully into effect at 10 a.m. ET on Jan. 19.
Coinbase is in a particularly tough spot as it recently announced plans to go public with an initial public offering (IPO) sale of stock. It will need the SEC’s approval for that, and so cannot afford to upset the agency.
U.S. exchanges selling XRP risk being accused of selling unregistered securities—a serious offense. Two smaller U.S. exchanges, Beaxy and CrossTower, delisted XRP the day after the SEC lawsuit was announced, citing the “uncertainty” around the fourth-largest cryptocurrency. Bitwise Asset Management liquidated its XRP on Dec. 23, citing the SEC complaint.
In Twitter comments at the time the suit was announced, Anderson Kill attorney Steven Palley said, “If XRP is a security it means that exchanges who are not registered broker dealers can’t list it.”
His colleague Haily Lennon added, “You know who is at risk if XRP is considered a security? EVERY EXCHANGE THAT LISTS XRP.”
The price of XRP tumbled from $0.28 to $0.24 within minutes of the 5:30 p.m. announcement, according to CoinMarketCap. XRP is down by more than 50% since the SEC lawsuit was announced.
Modern Consensus will update this story as more information becomes available.
Ripple came out swinging, releasing news of the lawsuit a day before the SEC filed its suit and promising to fight the SEC charges. In a Twitter thread, Garlinghouse said that in filing the suit, the agency “voted to attack crypto.”
He added: “Make no mistake, we are ready to fight and win—this battle is just beginning.”
Ripple did not immediately respond to a request for comment.
In a message to Ripple employees, Garlinghouse noted that he and Larsen had been given the opportunity to settle with the SEC and refused—although he did not specify the terms the SEC offered.
Promising that a separate peace was “NOT happening,” Garlinghouse said “[t]hat’s how confident Chris and I are that we are right. We will aggressively fight—and prove our case—through this case we will get clear rules of the road for the industry here in the U.S.”
In boldface, it added “We are not only on the right side of the law, but we will be on the right side of history.”
Ripple General Counsel Stuart Alderoty told Modern Consensus at the time, “This is certainly a direct assault on Ripple, but I think it’s so much more than that. I think it’s an assault on an entire American crypto industry and American innovation… we’re fighting not only for our interests, that we’re fighting for all American innovation, when it comes to crypto and digital assets.”
On Dec. 24, Japanese financial giant and Ripple partner SBI Holdings released a statement noting that “XRP is widely traded by crypto asset exchange companies in Japan, but under Japanese law, XRP is a “cryptocurrency asset” under the Funds Settlement Law and it is not applicable to ‘securities’ under the Financial Instruments and Exchange Act.”
It added that the firm would “continue to actively support the activities of Ripple to expand its use in Japan and overseas.”
U.S.-based MoneyGram, another Ripple partner, issued a more cautious statement after the SEC lawsuit was announced, saying it had not “been made aware of any negative impact to its commercial agreement with Ripple.”
MoneyGram’s statement added that it “will continue to monitor for any potential impact as developments in the lawsuit evolve.”
The SEC’s accusations
In a press release issued with the lawsuit, SEC Enforcement Division Director Stephanie Avakian, alleged that Ripple and its top two executives “violated the registration provisions of the federal securities laws.”
The SEC suit also names CEO Brad Garlinghouse and executive chairman Chris Larsen personally, saying they profited to the tune of $600 million.
The agency is seeking to claw back all of the proceeds of the sales by Ripple, Garlinghouse, and Larsen, as well as impose fines.
“We allege that Ripple, Larsen, and Garlinghouse failed to register their ongoing offer and sale of billions of XRP to retail investors,” Avakian said. This failure, she added, “deprived potential purchasers of adequate disclosures about XRP and Ripple’s business and other important long-standing protections that are fundamental to our robust public market system.”
In its lawsuit, the SEC alleges: “Ripple never filed a registration statement, it never provided investors with the material information that every year hundreds of other issuers include in such statements when soliciting public investment. Instead, Ripple created an information vacuum such that Ripple and the two insiders with the most control over it—Larsen and Garlinghouse—could sell XRP into a market that possessed only the information Defendants chose to share about Ripple and XRP.”