Coinbase Inc. today announced that it will suspend trading on Ripple Labs Inc.’s XRP cryptocurrency following a lawsuit filed against Ripple by the U.S. Securities and Exchange Commission alleging that the cryptocurrency is an unregistered security.

The suspension of XRP trading is not immediate, though Coinbase has moved to restrict trading leading up to the ban. Effective of today, XRP trading is being moved into a status described as “limit only,” a mode on Coinbase that means traders can only place and cancel limit orders, a type of order to purchase or sell at a specified price.

General market orders on XRP are no longer available. A full suspension on any form of trading involving XRP will go into place at 10 a.m. PST Jan. 19.

In a blog post, Coinbase Chief Legal Officer Paul Grewal noted that the ban will not affect the wallets of customers who hold XRP and the ability to deposit and withdraw will remain available. Support for XRP balances will remain in Coinbase Custody and Coinbase Wallet.

“We take seriously any decision to change our customers’ access to one of those assets,” Grewal noted. “We will continue to monitor legal developments related to XRP and update our customers as more information becomes available.”

The SEC filed its lawsuit Dec. 22 against Ripple and two of its executives — Christian Larson, the company’s co-founder and executive chairman of its board and former chief executive officer, and Bradley Garlinghouse, the company’s current CEO. It alleged that Ripple raised capital to finance the company’s business beginning in 2013 through the sale of unregistered securities to investors in the U.S. and worldwide.

The SEC alleges Ripple distributed billions of XRP in exchange for noncash considerations such as labor and market-making services, which is the key to its complaint.

The offering of a cryptocurrency is not illegal when the purpose is to provide a digital currency for trading, but per the Securities Act of 1933, any offer that involves funds being raised for a company must be registered as a security.

At a time when bitcoin continues to hit record highs, XRP investors have seen the cryptocurrency head in the opposite direction. After trading as high as 68.4358 cents on Nov. 24, Ripple has continued to drop. News that Coinbase was to ban trading prompted XRP to drop more than 18%, to 22.8409 cents, as of 9 p.m. EST.

Photo: Marco Verch/Flickr