In this photo illustration, the digital cryptocurrency Ripple is displayed in Paris, France, on January 30, 2018.
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Ripple’s Ripple The token has rallied 68% over the past 24 hours, leading a broader rally in major market capitalization altcoins as cryptocurrency traders digest a key ruling that could kill U.S. regulators’ clampdown on digital asset trading.
Solana’s sol and Cardano’s ADA Tokens are 26% and 21% higher, respectively, while Algorand’s something and polygonal Matic The tokens are up 12% and 9%, respectively.Most recently, the SEC has targeted popular cryptocurrency retail exchanges, including Binance and Coinbase.
But a summary judgment delivered Thursday by U.S. District Judge Analysa Torres called that classification into question.
For three years, the SEC and Ripple Labs (which developed the Ripple blockchain and issued the XRP token) have been locked in a protracted court battle over whether XRP, the world’s fourth-largest cryptocurrency, constitutes a security.
In 2020, the U.S. Securities and Exchange Commission (SEC) charged Ripple, its CEO Brad Garlinghouse, and the company’s executive chairman with violating securities laws when they sold $1.4 billion worth of XRP. Ripple’s insistence that its tokens are not securities has sparked ongoing confusion over which digital currencies fall into which regulatory bucket.
Many see the agency’s lawsuit against San Francisco startup Ripple as a bellwether for the industry, which could force the SEC to decide which of the nearly 20,000 crypto tokens fall under its jurisdiction.
Judge Analisa Torres of the U.S. District Court for the Southern District of New York ruled that XRP itself is “Not necessarily securities on the face of it.”
This has excited industry players, who view the decision as a victory for XRP and other tokens.
“Federal Judge Analisa Torres’ ruling is a landmark decision because she is critical of the SEC’s view that Ripple’s XRP token is not Securities regulated by the SEC present challenges.” Now Trial Partner with Bryan Cave Leighton Paisner in Chicago.
“The ruling weakens the SEC’s claim that virtually all tokens are securities and puts at risk some of the Commission’s recent enforcement actions.”
Mariotti said the industry hopes Thursday’s move “can lead Congress to a more rational regulatory plan.” But he added that uncertainty would continue due to the lack of clear regulation.
Still, the development has sparked excitement in the cryptocurrency market. Coinbase Has Started Relisting XRP Starts on Thursday.
The cryptocurrency market’s reaction is reminiscent of the height of the cryptocurrency boom in 2021, when several bitcoin “alternatives,” or altcoins, surged as the prices of the biggest cryptocurrencies rallied.
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Rather than handing Ripple an outright victory, Judge Torres ruled that some sales of XRP did constitute investment contracts that pass the so-called “Howey test,” a legal assessment that determines whether an asset is a security.
She said XRP sold to institutional investors qualifies as a security and should be registered with the SEC. This is because investors participating in these sales sign an agreement, which means they must lock up their tokens for a period of time.
Given their inability to exit the trade, XRP cannot possibly be considered a speculative investment.
Torres, on the other hand, said that “programmatic sales” of tokens — or cryptocurrency exchanges with retail investors — do not qualify as securities.
“The judge’s refusal to grant summary judgment on whether a programmatic sale of XRP through an exchange constituted a sale of securities means the issue will be litigated further,” said Cory Klippsten, CEO of bitcoin financial services company Swan.com. CNBC Business Channel.
“I believe that secondary trading of altcoins on exchanges will likely get a pass, and this is consistent with the law on paper.”
Most of the SEC’s recent actions against exchanges like Gemini, Binance, and Coinbase have been based on the assumption that the assets on the platforms are securities. Therefore, it is a violation of securities laws to go public without the approval of the SEC.
Thursday’s ruling could complicate the SEC’s action against exchanges by suggesting that cryptocurrency trading on the open market may not qualify as securities sales.
Stocks pegged to cryptocurrencies like Coinbase micro strategy The company, whose corporate balance sheet is heavily invested in bitcoin, was up 24% and 11%, respectively, as of Thursday’s close.
While Torres insists that XRP itself is not a security, many investors seem to be missing the point—it is not the asset itself that makes it a security, but the way it is sold or marketed.
It’s a more nuanced judgment than many in the industry have approached it, and it’s worth noting that the case is far from settled. Because the court will issue a separate order to set a trial date, some of the findings could be appealed and overturned.
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