SEC v Ripple: SEC Extension Request Fuels Investor Optimism

SEC v Ripple case-related updates garnered investor attention this week.

On Tuesday (February 27), the SEC filed a request to extend the deadline to submit its remedy-related brief by one week to March 22. The filing also requested extensions to the deadlines for Ripple to submit its remedy-related brief and for the SEC to file its reply brief. The court approved the request on Friday, March 1.

The SEC and Ripple are preparing remedy-related briefs. The SEC will argue for a punitive penalty for the unregistered XRP sales to institutional investors. In July 2023, Judge Analisa Torres ruled Ripple breached Section 5 of the US Securities Act for failing to register XRP in sales to institutional investors.

Ripple will cite case law to argue against a punitive penalty. The court will only consider XRP sales to US institutional investors (Morrison v NAB). Ripple may also seek an exemption to Section 5 for XRP sales to accredited investors. The court will also base a penalty on net proceeds from XRP sales to US institutional investors (Liu v SEC), allowing Ripple to deduct expenses.

However, the strength of arguments could hinge on post-complaint activity. Judge Torres could impose a punitive penalty if Ripple continued to breach Section 5 after the SEC filed the complaint.

Nonetheless, investors reacted positively to the SEC request for an extension. On the one hand, the SEC may need more time to consider documents from discovery. On the other hand, the SEC may have no basis to argue for a punitive penalty.

XRP was up 12.24% to $0.6091 Monday (February 26) to Saturday (March 2).

In a recent Bloomberg TV interview, Michael Novogratz, the founder and CEO of Galaxy Digital, forecasted that the flagship cryptocurrency might experience a temporary dip before it surges to new heights. 

Novogratz, a seasoned investor in the cryptocurrency space, believes that Bitcoin might retract to the mid-$50,000 range amid a broader consolidation phase after its impressive rally that saw a more than 40% increase this year. 

As reported by U.Today, the rally was largely fueled by the successful launch of Bitcoin exchange-traded funds (ETFs). 

The digital currency was trading at around $60,700 at the time of the interview, riding the wave of its recent gains.

The consolidation phase

Novogratz described the current market momentum as a “price discovery” phase that was spurred by the introduction of Bitcoin ETFs, which have attracted a new wave of investors to the cryptocurrency sector. This influx of buyers has significantly contributed to Bitcoin’s price surge.

However, Novogratz cautioned that the market’s current leverage levels, particularly among millennials and Gen Z investors who are “chasing highs,” indicate that a correction could be imminent. 

“You’ve got a lot of millennials and Gen Z YOLOing it, and they all will get some of that money and a lot of ’em will get wiped out,” he explained.

He pointed out that some investors might profit from the situation, but many could face significant losses if the market were to experience a downturn.

Leverage and marked dynamics

Further delving into market dynamics, Novogratz pointed out the difference in leverage between the bull run of 2021 and the current situation. 

He observed that big institutional players are now less leveraged while retail traders are over-leveraged, especially through offshore crypto trading platforms that offer substantial leverage. “The big institutional players have less leverage right now… but retail still loves leverage,” he said. 

This scenario, according to Novogratz, sets the stage for potential “washouts,” where the market could see a significant retraction before stabilizing and resuming its upward trajectory.

The crypto mogul warned of the volatility that such leverage can introduce to the market, stating, “You’re going to see this boom-bust in the short run with an overall really positive trend as people just keep deciding to allocate some of their portfolios to Bitcoin.”