Will SEC Settle or Pursue $770 Million Penalty?

Investors jumped back into the crypto market on Wednesday. Binance met its withdrawal demands, easing fears of a liquidity crisis and possible collapse of the world’s largest exchange.

According to Nansen, the value of crypto on Binance’s books declined by $1 billion since CZ stepped down. The $1 billion includes withdrawals and price declines.

New CEO Richard Teng reassured the markets of the firm’s strong fundamentals, saying,

“The fundamentals of our business are VERY strong. Binance continues to operate the world’s largest crypto exchange by volume, our capital structure is debt-free, expenses are modest, and, despite the low fees we charge our users, we have robust revenues and profits.”

XRP joined the broader crypto market in a rebound that delivered a $66.90 billion rise in total market cap. The total market cap fell by $65.01 billion on Tuesday.

Remedies-Related Discovery in Progress

The SEC and Ripple entered the final stage of the case earlier this month. Ripple and the SEC must complete remedies-related discovery by February 12, 2024. Significantly, the final deadline for filing remedies-related briefs is April 19, 2024. After the deadline, Judge Analisa Torres will decide the Ripple penalty for XRP sales to institutional investors.

Notably, the SEC could expedite the case and reach a settlement before February 12, 2024. However, a settlement would be unlikely if the SEC targets a disgorgement of $770 million. The $770 million includes XRP sales in the US and overseas. Case law is on Ripple’s side.

In Morrison v NAB, the Supreme Court ruled that the SEC only has jurisdiction over US-based sales. This will likely reduce the total sales figure significantly. Ripple can then deduct US-based expenses to arrive at a net profit figure. The Court would base the penalty on the net profits derived from the sale of XRP to US institutional investors.

Notably, case law also favors Ripple in arriving at a final penalty. In SEC v Govil, the Court ruled that the SEC may not ask for a crippling penalty without proving investors suffered from the sale of XRP to institutional investors.

While speculation of an early settlement circulates, the SEC may need to agree to an amount far less than Ripple’s legal bill. A drop from $770 million to less than $150 million could be a pill too bitter for the SEC to swallow.

Settlement Discussions Unlikely in November

On November 30, the SEC is having another closed-door meeting. Progress in remedies-related discovery will likely be a hot topic of discussion. However, the meeting could be too early for attendees to discuss possible settlement terms. Remedies-related discovery got underway less than two weeks ago.

Notably, the SEC held a closed-door meeting on November 2, one week before the deadline for file a briefing schedule relating to remedies for the remaining charges.

With no court activity until February 2024, updates from the SEC and Ripple on discovery will remain a focal point. However, XRP will likely remain sensitive to SEC activity within the US digital asset space.

XRP Price Action

Daily Chart

XRP held above the 50-day and 200-day EMAs, sending bullish price signals.

An XRP return to $0.62 would give the bulls a run at the $0.6354 resistance level.

SEC v Ripple-related news and SEC activity will remain the focal points.

A break below the trend line and 50-day EMA would bring the $0.5835 support level into play. However, buying pressure could intensify at $0.59. The 50-day EMA is confluent with the trend line.

The 14-day RSI reading of 49.31 suggests an XRP break below the $0.5835 support level before entering oversold territory.

4-Hourly Chart

On the 4-hourly chart, XRP held above the 200-day EMA while sitting below the 50-day EMA. Significantly, XRP broke above the trend line and the 200-day EMA during the Wednesday rebound.

An XRP move through the 50-day EMA would bring the $0.6354 resistance level into play.

However, a fall through the 200-ady EMA would give the bears a run at the trend line.

The 4-hourly RSI, with a reading of 50.72, indicates an XRP move to the $0.6354 resistance level before entering overbought territory.