The US District Court in the Southern District of New York made a landmark judgment for the cryptocurrency industry yesterday (Thursday). After a lengthy legal battle, Judge Analisa Torres ruled partially in favor of Ripple Labs, saying XRP is not a security when sold to retail investors.
The ruling brought joy to the cryptocurrency industry when regulators pressed the thump on several big crypto brands. The Securities and Exchange Commission (SEC), which alleged XRP was an unregistered security, also dragged Coinbase, Binance, and several other crypto companies to court.
“This is pretty modern technology and we’re talking about laws, in some cases, that are nearly a hundred years old and pre date the internet”
— Brock Pierce (@brockpierce) July 13, 2023
Was able to discuss on
Ripple winning it's SEC case and what it means for #crypto today on @foxbusiness. pic.twitter.com/wlyXj8q9YE
Crypto Industry Reacts Strongly to Ripple's Win
Following Thursday's preliminary judgment, demand for XRP tokens skyrocketed. The market price of XRP has soared by about 65 percent since, compared to only a 2.3 percent and 6.4 percent rise of Bitcoin and Ethereum, respectively, in the last 24 hours, according to Coinmarketcap.
However, XRP is not the only coin to gain that quickly. Cardano's ADA and Solana, which the SEC also labeled as unregistered securities in separate lawsuits against exchanges, jumped about 20 percent and 28 percent, respectively.
The sudden surge in the XRP price further made it the fourth-largest cryptocurrency, with a market capitalization of over $40.6 billion, only behind Bitcoin, Ethereum, and Tether.
"Ripple's win against the SEC is an immense victory for the cryptocurrency industry that will shape the future of crypto regulations," said Alex Adelman, the Co-Founder and CEO of Lolli.
"The landmark ruling establishes a powerful legal precedent that digital tokens sold on exchanges are not in and of themselves securities. The ruling is also the biggest challenge to the SEC's authority over cryptocurrencies to date and could narrow the scope of the agency's ability to regulate the industry."
The most important part of this ruling:
— Brad Garlinghouse (@bgarlinghouse) July 13, 2023
“XRP, as a digital token, is not in and of itself a “contract, transaction[,] or scheme” that embodies the Howey requirements of an investment contract.”
This is a now a matter of law (not up for trial.)
Relisting Starts
The SEC's lawsuit against Ripple in December 2020 forced several US-based cryptocurrency exchanges to delist the token to avoid any regulatory backlash for listing alleged unregistered securities. Now after Thursday's judgment, an array of crypto exchanges are willing to offer XRP again.
Coinbase and Gemini have confirmed that they will relist XRP on their trading platform. Kraken went a step ahead and already enabled XRP trading for its US users by the end of the day.
"The ruling on Ripple highlights the detrimental impact of a regulation-by-enforcement approach, further underscoring its negative consequences for the entire industry," said Hashflow's General Council, Rahsan Boykin. "This strategy breeds uncertainty, as regulators lack clear guidelines to adhere to, hindering market innovation. To foster a conducive environment for growth, Congress must step in and offer guidance akin to Europe's MICA regulations."
"It is imperative to move away from a reactionary enforcement model and embrace proactive regulation that fosters industry development while safeguarding the interests of investors and consumers."
The SEC loss in the Ripple case SHOULD pressure Congress to fill the regulatory void. @GOPMajorityWhip @PatrickMcHenry @SenatorHagerty @SenGillibrand @SenatorBooker Let’s do this!!!!
— Mike Novogratz (@novogratz) July 13, 2023
A Nuanced Judgement
Though the cryptocurrency industry is celebrating the victory of Ripple, it was only partial. The court stated that XRP's sale to sophisticated investors and hedge funds violated the US federal securities law. In those cases, XRP can be categorized as securities.
"The court has found Ripple to be in violation of securities laws, specifically in relation to direct sales to institutional investors," said the Head of Product of CoinShares, Townsend Lansing.
"As such, XRP is not only deemed a security, but questions have arisen regarding the legality of its offering. In regards to these sales, the court has confirmed that the law was indeed violated, marking a considerable victory for the SEC and setting a precedent for its legal actions against other cryptocurrencies."
Benefits to Coinbase
Coincidently, Coinbase faced the SEC in court on Thursday, in its first hearing. The exchange is facing several allegations, including the listing of unregistered securities. Though Coinbase's court appearance did not result in much development, Ripple's judgment brought surprising enthusiasm among Coinbase's shareholders.
Before the markets closed on Thursday, the public-listed shares of Coinbase jumped over 24 percent, taking the price to $107.
"The surge was driven in large part by investors who interpreted Judge Torres' ruling as representing a rejection of the SEC's argument in the lawsuit it filed against COIN on June 6 that many of the tokens bought and sold in secondary-market transactions on the company's exchange are unregistered securities," said the analysts led by Mark Palmer at Berenberg Capital Markets, a company that put Coinbase share price target at $37.
"[The ruling] pertained solely to the primary market transactions through which Ripple sold XRP, while COIN is in the business of facilitating secondary-market transactions on its exchange."
