Coinbase will suspend trading and deposits in XRP (XRPUSD), the world's third biggest cryptocurrency by market capitalization, starting Jan. 19, 2021. The San Francisco-based exchange cited the Securities and Exchange Commission's (SEC) decision to file a lawsuit against Ripple Labs, Inc., the company responsible for issuing XRP, for its decision. It also announced in a blogpost yesterday that trading in XRP will move to limit-only, meaning crypto traders will only be able to place limit orders on the cryptocurrency, starting tonight.

Crypto traders will be able to withdraw and access XRP in their wallet even after the trading suspension. Coinbase also said that it will support the distribution of free Spark tokens, which provide smart contract functionality to XRP, equal to the XRP amount in customer wallets on Dec. 12. The airdrop, the term used to describe such distribution events, is expected to occur at a future date.

"We will continue to monitor legal developments related to XRP and update our customers as more information becomes available," Paul Grewal, Coinbase's chief legal officer, wrote in the post.

Key Takeaways

  • Coinbase will suspend trading and deposits in Ripple's XRP starting Jan. 19.
  • The decision by the San Francisco-based exchange may be related to its recent filing to go public.

The Business and Legal Considerations for Coinbase

Ripple's XRP has faced blowback from within the crypto ecosystem, and its price has crashed after the SEC filed a case against it. The complaint charges XRP's backers with conducting an unlawful issuance of securities and personally profiting from the endeavor.

Coinbase is the third exchange to take action against XRP in recent days. Belgium-based Bitstamp earlier announced that it was halting all trading and deposit operations related to XRP from Jan 8. OKCoin, another San Francisco-based exchange, has also stated that it will suspend XRP trading and deposits starting Jan. 4.

However, Coinbase's case is notable because it is the first major exchange to suspend XRP. Coinbase is North America's biggest crypto trading exchange and recently filed with the SEC to go public.

Some experts have said that the exchange's decision to toe the agency's line is because it does not want to be on the wrong side of compliance at such a critical juncture in its history. The Digital Asset Framework used by Coinbase to evaluate listing for a token states that an asset should not be classified as a security using the company's securities law framework. That framework uses elements of the Howey Test, used by the SEC to determine whether a token is a security or not, to determine the legal status of a token.

Those legal considerations are also entwined with business interests. According to some estimates, XRP accounts for a major chunk of trading volume at Coinbase. Delisting or suspending XRP trading could potentially mean a loss of revenue for the exchange. While it has never disclosed its finances publicly, previous estimates have assumed that a large portion of the outfit's revenue comes from trading operations.