The past week has been a rollercoaster ride for XRP holders. News of the filing for the first XRP exchange-traded fund (ETF) was followed by the United States Securities and Exchange Commission appealing its court loss to XRP issuer Ripple.
Observers could be forgiven for wondering if the two events were connected.
Consider the timeline: Index fund manager Bitwise applied to incorporate the Bitwise XRP (XRP) ETF in Delaware on Sept. 30 and then filed an application with the SEC on Oct. 2 for the XRP ETF.
The application’s chances of success were considered higher than for other cryptocurrencies, such as Solana, especially after Judge Analisa Torrens ruled last year that XRP was not a security in a court case against Ripple brought by the SEC.
Still, market excitement was dampened soon after on Oct. 2, when the SEC decided to appeal the Ripple court ruling.
XRP’s price market action illustrates the emotional rollercoaster that XRP holders went through. The demand for XRP surged as news of the Delaware filing spread, then plummeted after the decision from the SEC to appeal the Ripple case was announced.
Market action of the last seven days from Oct. 3. Source: CoinMarketCap
Still, the two events may be coincidental as the SEC’s deadline for appealing Judge Torres’ July 2023 ruling was Oct. 7.
Ahead of the appeal’s announcement, Galaxy head of research Alex Thorn predicted the SEC would appeal and “the likelihood of this ETF filing succeeding drops to near zero.”
In contrast, trader BubCugs, who has 82,000 followers on X, speculated that the appeal was just “SEC theatrics” to keep the gameboard busy until the next administration is elected.
US elections represent a “huge variable”
After the approval of the spot Ether ETF, speculation shifted toward which crypto would be next, with many suggesting Solana (SOL) was the next top contender.
However, Solana was listed as a possible security in the SEC vs. Binance lawsuit for facilitating the trade of unregistered securities. Nick Cowan, group CEO of fintech firm Valereum, highlighted to Cointelegraph how the uncertainty over its status could damage any possibility of a SOL ETF.
“Solana could possibly be classified as a security - this would likely slow down any ETF approval.”
XRP, having been declared by a court not to be a security, was therefore in a better position.
Eric Balchunas, a senior ETF analyst at Bloomberg, said that the ETF’s approval is probably more closely tied to the outcome of the forthcoming US election than to the court cases.
He said on Oct. 2 that if Democratic candidate Kamala Harris wins the election, there is a “near zero” possibility that the XRP ETF will be approved. On the other hand, pro-crypto Republican candidate Donald Trump’s victory would mean “anything is possible,” including a significant influx of other altcoin ETF filings. He added:
“If Trump wins, we could see other coins as ETFs, in my opinion.”
Balchunas views the current XRP filing as a “cheap call option on a Trump win,” because the candidate has vowed to replace anti-crypto SEC Chair Gary Gensler, potentially paving the way for the ETF’s approval. Conversely, if Kamala Harris wins, the filings may simply expire into obscurity.
Source: Eric Balchunas
Still, Harris has recently made some vague but positive statements about digital assets and blockchain, and Sergei Gorev, risk manager at Web3 YouHodler, told Cointelegraph that the election outcome would not prevent the crypto industry’s evolution.
“The election outcome might only serve to either delay or hasten the adoption of cryptocurrencies in the future. However, it’s clear that cryptocurrencies are here to stay for the long haul”.
XRP appeal could drag on for two years
According to lawyer and Hodl Law founder Fred Rispoli, the appeal could drag the case on until early 2026, and Brad Garlinghouse, CEO of Ripple, has declared they’ll “fight in court for as long as we need.”
Gorev said XRP has other advantages over Solana for ETF because a SOL ETF must address technical malfunctions.
“Solana is still a technically crude industry product and often does not withstand network loads,” he said about the many blockchain halts it has suffered.
The Solana Foundation’s Dan Albert has admitted that an August emergency upgrade conducted in secret addressed a bug that could cause yet another network outage.
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Gorev said technical issues are not a problem with XRP, which, in his opinion, is “a full-fledged player in the crypto industry, who has been feeling quite confident for quite a long time.”
Second-tier cryptocurrencies aren’t popular among ETF investors
Cowan said investors will be grateful for further diversification of crypto ETF products because they widen their choice of investments and access to crypto beyond Bitcoin (BTC) and Ether (ETH).
Still, Gorev said that despite the excitement in the XRP community over a possible ETF, it’s unlikely to lead to a substantial surge in outside interest or a large influx of active investors into XRP. The ETH ETF is instructive for understanding ETF investor sentiment toward second-tier coins.
Comparison of ETF flows between Bitcoin and Ether ETFs. Source: Farside Investors
The Ether ETFs have so far disappointed with comparatively low demand and daily volume, and have seen significant outflows from Grayscale’s product. Still, they’re slowly gaining traction as new daily records are reached amid a crypto bull market.
Gorev said that TradFi investors often allocate a specific liquidity pool to cryptocurrencies . They have already tipped their funds into BTC, which was once the only available crypto asset ETF.
Therefore, for liquidity to get into the XRP ETF, investors would first need to sell some of their BTC or ETH.
He said many investors won’t take such action, as “most will prefer to remain in the BTC and ETH ETFs already available in the portfolio.”
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