Here’s Why BlackRock’s Ripple ETF Is Likely to Be Turned Down. At Least for Now

Last week, wealth management giant BlackRock was reported to submit a filing for a spot XRP ETF. This fact triggered waves of excitement throughout the cryptocurrency space since potentially such a product, if approved, could give a chance to numerous institutional investors to enter the XRP market. 

Still, the likelihood of this approval seems to be rather slim. The key reason here is the ongoing legal battle between the US Securities and Exchange Commission (SEC) and Ripple blockchain monster, which XRP is affiliated with.

Brief History of the SEC-Ripple Case

The core issue of this legal case was the SEC claiming that XRP was a security not registered with the regulator.  The SEC insisted in court that Ripple and its two bosses – co founder and former CEO Chris Larsen and its current CEO Brad Garlinghouse – sold a great deal of XRP coins to financial institutions and on retail exchanges, earning more than $1.3 billion on those sales, violating US security laws. Ripple offered counter arguments, saying that XRP was a fully-fledged currency and it should be regulated as a currency, not a security.

The case was filed in December 2020 by Jay Clayton who stood at the SEC’s wheel back then. However, he resigned on the same day and Gary Gensler was appointed to take over from him. Contrary to the expectations of the crypto community, the new SEC boss did not wind down the case, he began to pursue the allegations against Ripple enthusiastically. 

What is more, he initiated a large-scale campaign on claiming that other altcoins were also unregistered securities and began using crypto exchanges based in the US. As for Ripple, the company insisted that XRP was widely recognized as a currency, similarly to Bitcoin and Ethereum, which by then had been acknowledged by the SEC as commodities and currencies, not securities.

Finally, after three years after the SEC filed this suit against Ripple, in July 2023, federal judge Analisa Torres made a ruling in favor of Ripple, stating that programmatic XRP sales on retail crypto exchanges did not make this coin a security. However, she did also rule that institutional sales of XRP could be seen as securities offerings and this made the matter resolved only partly.

Recently, the SEC made a new move that continued the story of this case by filing for an appeal. This time, the regulator did not question the partly non-security status of the coin but went for Chris Larsen and Brad Garlinghouse and the XRP sales they made personally. Initially, the SEC dropped allegations against them but now, the regulator’s legal team decided to pick them up again and took this case to a higher court, hoping for a review of the previous ruling.

BlackRock’s XRP ETF Filing Made in Bad Time

These continuous legal proceedings are likely to create substantial hurdles for the SEC’s approval of any financial product that aims to be based on the XRP coin, such as BlackRock’s spot ETF, a proposal of which it put on the regulator’s table last week.

While many crypto enthusiasts are placing their hopes on Donald Trump’s victory in the upcoming elections, where the chances of his winning have drastically increased lately, that cannot guarantee approval either. Although there is one important factor to this – Trump, who is in favor of reasonable crypto regulations in the US, promised to fire Gary Gensler from the SEC leader position on the first day of his potential new presidential term.

Many are speculating that should Trump beat Harris and win the presidency, his administration would adopt a more favorable stance towards crypto and its regulation. Still, crypto regulation is not down to only the presidential administration. It requires joined efforts of several key governmental bodies – the SEC, the Treasury Department, the CFTC (the Commodity Futures Trading Commission), and potentially several others. A presidential administration has limited control over these entities. However, it could influence their policy indirectly by making certain appointments and through overall legal support of crypto friendly legislation.

Still, even if Donald Trump were elected, any specific shifts in the SEC’s attitude towards XRP would likely take time.

BlackRock decided to file for an XRP-based ETF after it successfully launched ETFs based on the spot prices of Bitcoin and then that of Ethereum. Currently, the company’s product is the largest Bitcoin holder in the market. Perhaps, BlackRock is signaling interest in cryptocurrencies as a whole and is prepared for a long wait before its XRP ETF proposal finds approval. 

After all, before the SEC approved spot Bitcoin ETFs in January this year, these proposals were many times rejected, particularly because they were made by Grayscale. A futures Bitcoin ETF was approved in the autumn 2021, which also took a long time.

Still, given the long-standing legal war between the SEC and Ripple, the likelihood of the former approving an XRP ETF seems pretty low at the moment.