Understanding the XRP Controversy: SEC Charges and Market Impact

hello everyone uh people who've been following the market would know that xrp has probably lost half its value in the

last couple of days and uh a lot of people have asked me on twitter to make a small explainer video like always

do so this is a very quick video in terms of my understanding of what's happening and just

and hopefully it will benefit you in terms of understanding the overall scenario

if you have already not understood it so in summary right what what uh the fundamental uh issue is

that whether it's a security or a crypto so the uh the it all started yesterday it all

started on december 22nd night um our day before yesterday when cc uh cc is the governing body for securities

and exchange commission in u.s like the sebi of india it charged ripple and two of its executive the ceo

and other executive with 1.3 billion dollars um of unregistered securities being sold

um securities um the triple corporation had sold

in terms of xrp um so what does it mean actually so this this the whole issue started with this

before we actually go into uh that tweet you know we look at what is the security in the in the first place

in its simplest form uh we've spoken about it in share trading i've explained it in episode 5 as well

now there are different types of um shares and and securities available the basic form

is the normal stocks shows um the shares that we buy in a company and there are bonds and

futures like derivative products that i explained in detail in my episode five as well so this is

what a security is you know it's buying ownership in the company in the form of in a smaller chunks of the company

and because you have smaller ownership in the company that's uh you're spending money for it and then

the company gets money to basically expand the business it's it's a form of investment that the

company gets from people and they give dividends and they give profit shares because of the shares that

you have and you can when the company performs well you can basically resell these shares in

different platforms so what's the difference between security and commodity you know

we'll explain with commodity and then we'll go to crypto so take an example of a watch manufacturer

right um and they can register this company and they can register

parts of i mean they can register shares of the company as securities with the security agency of that

particular governing country um and then they can say that a thousand shares are created and 100 rupees per

share so it's like one lakh rupees that i've created as a value of the company and

they're going to sell 400 shares region under shares 40 of the companies being sold they raised

40 000 rupees so if someone buys for example 100 shares then they own 10 percent of the

company now so they're all now shareholders and they are they can ask questions to the

company they can get profit shares from the company depending upon how those securities have

been registered so there's like lot of terms and conditions that govern the sale of the securities and buying of

the securities trading of these securities only limited platforms are allowed

to trade these securities when they get a license for trading securities in

in a commodity scenario if this watch manufacturer decided that's too much of a hassle for me so

he's basically telling people okay i'll give you watches and free i mean manufacturing watches

i'll give you these watches you know there's no securities being registered there's no government body that has been

coming into picture i'm just going to give you watches so basically they get money to say that

once i manufacture watch i'll give you these watches or he'll say that okay to carpenter

or painters or laborers that are working for him that okay i'll give you 10 watches for

for doing this carpentry job 20 watches for this so he's basically giving them commodities in exchange for

work as well labor as well so you can get money or labor or anything done out of them

with the commodities that he is going to actually produce so they are not shareholders they have no ownership in

the company but they can sell those watches once the watches start trading you know where whichever workshop that

they want to sell or they can individually sell to someone else because they have a value now it's being

it's creating a value in terms of the watches so imagine another example right where

there's no physical commodity for example a mobile network provider so they can do the same concept with

security or they can say that okay you know give me money i'll give you a one-year mobile

connection in exchange of your money um before they even actually start the work that's but that's when they

actually sell this so this is like a promise basically so and they can

say the same thing for the carpenter and painter as well to year free connection four year free connection instead of

money i'll give you this that's a commodity being offered like that's a bartender system right

that's how it used to work i explained earlier before currency came into picture and

they're not shareholders they have no ownership in the company and they may not be able to sell this

commodity because it's a non-transferable commodity sometimes it could be like that

so you know what are the common commodities you know every country has their own commodity trading restrictions

but you know commonly oil wheat pulses rice coffee tea butter sugar chicken

all of these are commodities that can be traded um you know not not necessarily like one-on-one sales that can be traded

in bulk as a commodity trading platforms there are commodity trading platforms where you know there's a lot that goes

on behind it we'll not look at it in detail but that's that's in general

explaining you the difference between what a security is and what a commodity trading is

now what crypto creators crypto creators do they gave these crypto tokens free for developers for the development work

for promotions for collaborators and for exchanges as well for promoting their for listing their

exchange for listing the krypton exchange they give crypto as free um to these uh

these people and in pretty much everything right like for right from bitcoin to ethereum

to link xrp everyone gave their crypto uh free to the promoters collaborators employers

you know developers all of them got a free share crypto has rewards basically whatever crypto

product that they created and later they were allowed to trade them in in crypto platform they were

free to sell the xrp they were free to you know buy the xrp you know transfer it from

one person to another person whatever they want to do in any platform that allowed them to do the

crypto trading so where does security exchange commission come in right so like i said they are like an american

equivalent of sebi uh security section board of india so if an entity will be traded as a

commodity they can't govern it but if an entity will be traded as a security where there is an ownership to the

company it has to be first registered with suc in america

and there are certain rules and conditions where scc will say that only within these rules and boundaries within

these platforms that we have given a license to for security trading where you can actually

go and trade this securities so um jake clayton is the chairman of security exchange commission

he had previously granted bitcoin and ethereum virtual currency status where he didn't

he said that they're not securities they're not governed by a rule they don't need to be gone by our rules

and they will be virtual currencies which means that they're outside of our purview which means that they can be

traded as a commodity or as a crypto in all the crypto trading platforms which means

scc do not have to give license to a trading platform to trade bitcoin and ethereum

but they alleged xrp is a security uh in the way that it was given initially to raise money for the company so that

they were basically saying that there is a difference between bitcoin ethereum and

xrp this is not new this has been happening for nearly three years between scc and ripple and there has been no

decision no conclusive evidence provided to say that why is bitcoin ethereum different why did you accept

this virtual currency whereas xrp or you are saying that this is uh is a security

you know if you have accepted bitcoin and ethereum pretty much everything that was done by bitcoin ethereum was done by

xrp as well so what's the difference that was always an ongoing argument there was

no clarity or conclusion to that saga and who appoints the sec chairman ssc chairman and all the

members of sec are appointed by the u.s president and when the president's change this

whole board changes like how raghuram rajan was changed to ajit pathil right and you know policies and everything are

controlled pretty much by sec chairman but you know obviously with the blessing of the president

so the sec current asset chairman jay clayton um he would have obviously been changed once biden

administration took over from president trump but he actually resigned yesterday on 2010 and pretty much on his last

day last working day he announced that they're actually making a decision that xrp is a security and they're going to

take a legal action against xrp now again still no new conclusive evidence has been given but they have created a

72 page document to say that this is our explanation as to why xrp is nothing new but they've just created a

document and said that we have taken a decision xrp is a security we are going to charge

the company against with legal action so this is uh this was basically you know

in fact there's even an article that said that he made a decision very controversial decision on his last

working day before handing in the resignation and that resulted in like a 50 billion

dollar catastrophical sell-off and it basically created a crash

so where the sec chairman was supposed to protect the investors he actually acted against the investors

causing a massive uh food or a fear and and fear and uncertainty and uh um and it it wasn't

it wasn't in the welfare of the investors that's what the the most of the news articles were claiming

basically i'm just reiterating what the news news is saying and not my

personal opinion so if this is enforced as the law right xrp cannot be tried on traded on platforms that don't have

license for trading securities so you know many uh platforms have trading um security licenses i mean security

trading licenses and they can continue to trade xrp so it's not that xrp will go away completely

it's just that it will be limited to only those exchanges which have license to sell um the the securities if

a small exchange like you know small indian exchanges for example

don't have security trading license they can't they may not be able to sell it if it's classified as a security

and agreed by sebi as well now right now this is only u.s jurisdiction so only sec that's come into picture so

if our crypto agency is registered in u.s they have to abide by the sec

regulations which means that they will not be able to they if this becomes law uh if if cc

wins this case they will not be able to trade the xrp as a cryptocurrency because

it's been deemed as security by sec which comes under the purview of the security trading rules

so um what happens now to xrp so the ceo of ripple said that they're going to challenge this fully

legally in court and they have a lot of money to handle this trial so it's going to

become a long legal battle and there are presidents as well you know previously department of justice

financial claims enforcement agency they've all ruled that xrp is a cryptocurrency and

not a security so sac is the only agency currently claiming

contradicting to the previous rulings and u.s department justice rulings saying

that no crypto xrp is not a cryptocurrency but it's a security so this is kind of

contradicting to previous stands that the previous american agencies have taken

so obviously that can also come into play in the legal battle and potentially the bid and administration when they

take over when a new sec chairman is appointed they can also treat it differently

they can cancel the whole thing as well and depends on what what happens but it's absolutely unclear why the sec

chairman he decided that bitcoin and ethereum are crypto and why he did not want to bring

them under securities which means that he's doing a favor for those cryptos

compared to the xrp and that could mean that he can apply the same rule for link trx bet any other billion dollar

cryptocurrency and classify them as security because there is no yardstick or a parameter

that's been given to say why is xrpi security and why uh the other cryptos are not securities

so that's why the ripple have called it an attack on all of the crypto and all of the blockchain innovation basically

um so what happened yesterday was was intriguing actually because three smaller exchanges that that was the

first news that came out no one had even heard about these exchanges before but they actually came

out some of them were not even operating in american jurisdiction they didn't even have to d list because

scc was purely american jurisdiction but they came out and said that look we're going to deal with xrp as a

proactive measure actually one of the exchange had security trading license which means that

they can continue to trade xrp all that sec was saying was xrp will be traded only by um you know

agencies that have security trading license one of the agencies that de-listed xrp

actually had security trading license and but they just despite the fact that they actually went and

they spread this news a lot these three exchanges de-listing srp created a big huge fear

uncertainty and doubt and uh people were saying okay you know if happens to example it could happen to

any currency and literally all of the currencies were shorted shorted meaning that

people were betting against the fall um of all these cryptos and people like link

for example they said okay if link falls thirty percent um i will bet hundred dollars and you

know literally it wiped off 50 billion dollars of the entire crypto value and short

positions that were open betting positions that were open people saying that it will definitely fall

they made millions of dollars in profits and binance was one small exchange or one small example

where like the millions of dollars in volume that was traded on short positions on these

cryptos and you can actually go and see these short positions in binance

it's not something that it's not visible to the eye it's illegal but it's probably not ethical to do what they did

um so what did i what did i do with my xrp personally i've never promoted xrp i mean i said in my episode

2 explicitly that it's not in my top 10 but

in terms of the crypto that i've bought this year but i bought it two years back and i've been i've been at a loss

for nearly two years and i've not sold it it was a very large position and i i did say in episode two that i will

sell it once i reach a profit level and i reach the profit level in the recent xrp bounce and i even

clarified that i sold a decent position and i still have a decent position hey

it's comparatively smaller to my other positions in zap and link but you know i'm not out of it

completely but that position i'm not going to sell it now uh

because of the fear that has been created even if it goes down to 5p or 2p and i'm not going to sell it i'm going

to wait like how i previously waited even if it's like 70 80 loss i'm i'm not buying i have not

bought xrp in the recent uh weeks so um i'm not going to buy it even now despite the fact that that's

fallen but i'm not going to take a uh i'm not going to sell my xrp at a loss that because of the fear that was

created i don't think xrp i mean personally i don't think xrp will go away

and that's what's my personal opinion it's just that it'll there be probably you know a long legal battle so there

might be a long turbulent period for example and it could be a long long wait and if it goes into a

legal case you know how long legal cases can take right but you know the defy of fl are the

decentralized finance that flrs is doing for xr it could actually bring more value

despite all of this you know xrp could increase in value because of what flr is doing

um and a large uh you know several groups like the financial bank of japan sbi holdings they have

come out in unanimous support of xrp and said that look we already operate pretty much outside the american

regulations because we are not operating in that jurisdiction so whatever sec's lawsuit is

we're not bothered about it is still going to support xrp in full so there are lot of support there is a

lot of support as well for the platform for the tokens in itself and you know what uh

you know people ask me what what they should do i'm not an investment text but i made this point very clear multiple

times i'm not a financial advisor i'm only doing these videos to provide clarity information

i've never promoted any crypto i've said like about even zap and link i said they are my top

crypto because um i believe in these reasons and i've never said

uh in in any of my videos go and buy this crypto or you know you you know you should

probably buy this crypto you'll get profit i've never said in any of my videos so i'm i'm going to

stick to the same position that i've always taken that you know your

decision should be based on your own risk appetite i've always said that you know do not use your essential funds

crypto is highly volatile i've maintained this warning multiple times and i'm going to do it again so

all of this is for clarity and information so you need to decide on your own scenario whether you're

unable to survive like for example you might have bought it at 25 per year or 20 p and

you probably still not made a loss and you might be thinking that okay you know i need these funds now

i can get out now that's that's your own decision so you know everyone's decision is going to be different everyone's

position is going to be different i've only provided clarity on what is happening today

and what you can expect out of all of this the the commotion that it is causing right that's what i've

tried to explain so hopefully this was useful to you guys until next time thank you bye