XRP surged yesterday with a swell of investors pushing its price past US$0.70, a 163% increase over a seven-day period, briefly restoring XRP to its position as the third biggest cryptocurrency by market cap, according to data from CoinGecko

But the price pump was not sustained. XRP prices fell to US$0.45 hours later, though still higher than the levels seen after the U.S. Securities and Exchange Commission announced its lawsuit against Ripple Labs in December. XRP is currently trading around US$0.37 at time of publication. 

Over the weekend, the prices of XRP and Dogecoin (DOGE) soared as retail traders —  inspired by the dramatic rise of GameStop (GME) prices — coordinated over social media platforms such as Discord, Reddit, Twitter and Telegram to also drive up the prices of those cryptocurrencies.

“$XRP pumping after a Telegram group organized a pump and dump for February 1st. Up 221% this year, even outperforming #Bitcoin, and most alts,” tweeted financial analyst @CryptoWhale on Monday.

Even rock legend Gene Simmons took to Twitter to say that he “bought Dogecoin, XRP and others.”

Flare Networks posted a cautionary message on Twitter, saying “We certainly do not condone coordinated pumps of any kind but crucially in the XRP case it is also important to point out that unlike with GameStop — there isn’t a giant short position to squeeze into capitulation.”

So, was the rise in XRP prices mere copycat hype, or could it also be a sign of investor confidence in Ripple returning — even if briefly — after the company filed a strongly-worded legal response to the SEC’s lawsuit

In December, the SEC filed a lawsuit against Ripple, the San Francisco-based payments technology company, its CEO Brad Garlinghouse and Chairman Chris Larsen for allegedly raising over US$1.3 billion through the sale of XRP in an unregistered securities offering.

In response to the SEC lawsuit, the price of XRP fell by more than 50%, from US$0.55 to US$0.25, and many exchanges delisted XRP. But the current rebound has erased some of that loss. 

See related article: SEC commissioner Hester Peirce says enforcement is never good way to provide clarity

In a 93-page court filing last Friday that outlined its legal defense, Ripple Labs provided a paragraph by paragraph response to the SEC’s complaint and asserted that XRP “is not a security and the SEC has no authority to regulate it as one.” 

According to the SEC’s lawsuit, “The definition of a ‘security’ under the Securities Act includes a wide range of investment vehicles, including ‘investment contracts.’ Investment contracts are instruments through which a person invests money in a common enterprise and reasonably expects profits or returns derived from the entrepreneurial or managerial efforts of others.”

But Ripple is counter-arguing that “the functionality and liquidity of XRP are wholly incompatible with securities regulation.” The company contends that it has never held an initial coin offering (“ICO”) and did not sell or distribute XRP as an investment contract, and is therefore out of scope of the “Howey Test.”

Ripple points out that the SEC’s arguments may be at odds with other U.S. regulators as the U.S. Department of Justice (“DOJ”) and the U.S. Department of the Treasury’s Financial Crimes Enforcement Network (“FinCEN”), in 2015 and 2020, had already established XRP’s status as a virtual currency rather than securities.

“Those determinations are consistent with the economic reality that XRP functions as a store of value, a medium of exchange and a unit of account — not a share in Ripple’s profits,” according to Ripple’s statement filed on Jan. 29 in the U.S. District Court for the Southern District of New York. “When the DOJ and FinCEN reached those determinations in 2015, the SEC said not a word. Securities regulators in the United Kingdom, Japan, and Singapore have likewise concluded that XRP is a virtual currency not subject to securities regulation.”

Ripple also takes aim at bitcoin and ether, the two largest cryptocurrencies by market cap. Its legal response refers to the SEC’s lawsuit as “picking virtual currency winners and losers as the SEC has exempted bitcoin and ether from similar regulation.”

Stuart Alderoty, the general counsel for Ripple Labs, says Ripple has filed a Freedom of Information Act (FOIA) request to the SEC to find out how Ethereum got off the hook and ether was determined to be not a security despite Ethereum’s ICO.

“As we have said for many years, we’re simply asking for the rules to be clearly stated and applied consistently,” Ripple said, in a media statement that the company emailed to Forkast.News. “To date, they have offered no guidance for that determination, hindering responsible players like Ripple from being able to innovate in the U.S. to bring faster, cheaper and more transparent global payments to consumers who need them the most.” 

Ripple’s FOIA request made reference to statements made in 2018 by then-SEC Director of Corporation Finance William Hinman, who said, “Putting aside the fundraising that accompanied the creation of ether, based on my understanding of the present state of ether, the Ethereum network and its decentralized structure, current offers and sales of ether are not securities transactions. And, as with bitcoin, applying the disclosure regime of the federal securities laws to current transactions in ether would seem to add little value.”

A pretrial conference has been scheduled for Feb. 22. According to court documents, 22 lawyers are involved in Ripple’s defense — four representing Ripple’s CEO Brad Garlinghouse, five representing Chris Larsen, the chairman, and 13 representing the company.

“We’re not defending this case just for ourselves, we’re fighting for everyone who has been hurt by the SEC’s filing, to restore order to the markets and most importantly, for industry clarity,” Alderoty said, in a tweet. “We will push to get this case resolved as quickly as possible.”