Feb. 21, 2025
The SEC should delay approval of an XRP ETF due to the ongoing legal and regulatory uncertainties surrounding Ripple Labs and its cryptocurrency, XRP, which create significant risks for investors and undermine the stability required for a regulated exchange-traded fund (ETF). Ripple is still navigating a complex legal battle with the SEC, with Judge Analisa Torres retaining jurisdiction over the case until August 7, 2025, to ensure compliance with a $125 million penalty ruling. The SEC's potential decision to drop its appeal or renegotiate the penalty adds further uncertainty, as the outcome could reshape the classification of XRP as a security under U.S. law. This unresolved litigation stems from the SEC's 2020 lawsuit against Ripple, alleging that XRP sales constituted unregistered securities offerings. While Judge Torres ruled in 2023 that some XRP sales violated securities laws, the ambiguity persists regarding XRP's status-particularly for programmatic sales on exchanges-creating a regulatory gray area. Approving an XRP ETF prematurely could expose investors to heightened risks if the SEC's appeal or future rulings reclassify XRP more broadly as a security, potentially triggering additional enforcement actions or market instability. This concern is echoed in web results, such as Bloomberg analyst James Seyffart's warning that XRP's legal challenges could delay or prioritize other crypto ETFs, like those for Litecoin, over XRP. Moreover, the absence of a regulated futures market for XRP, as noted in Bloomberg's coverage of crypto ETF developments, contrasts with Bitcoin and Ethereum, which had established futures markets on the Chicago Mercantile Exchange before their spot ETF approvals. Additionally, cryptocurrencies like Ethereum, Bitcoin, Litecoin, and others have futures contracts available on platforms like Coinbase, providing further market infrastructure to manage risk and volatility, whereas XRP lacks such offerings. The SEC has historically required such infrastructure to mitigate manipulation risks, and without it, approving an XRP ETF could invite regulatory scrutiny or legal challenges, further complicating the crypto market's maturation. The web results also indicate that XRP's price volatility and market sensitivity to legal developments-such as the potential for XRP to drop below $1.50 or surge to $3.55 depending on SEC actions-heighten the risk of investor harm if an ETF is approved before these issues are resolved. Finally, the SEC's broader 2025 priorities, including crypto regulation and fiduciary duty, suggest a cautious approach is warranted. Delaying XRP ETF approval until Ripple's legal battles are fully resolved and a clearer regulatory framework is established would align with the SEC's mandate to protect investors and maintain market integrity, especially in the uncharted territory of cryptocurrency regulation. This delay would also allow time to assess the impact of recent legislative changes, such as the SEC Act of 2025 (H.R. 216), which aims to clarify penalty structures for securities violations, potentially affecting XRP's regulatory status. By postponing XRP ETF approval, the SEC can ensure that any eventual decision is grounded in a stable, transparent, and legally sound foundation, minimizing risks to investors and the broader financial system.