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In this photo illustration, a visual representation of Cryptocurrency Ripple is shown on January 30, 2018 in Paris, France.
Chesnot | Getty Images
Ripple XRP The token is up 68% in the past 24 hours, sparking a broad rally for the large-cap altcoin, as cryptocurrency traders grapple with a key ruling that could stifle US regulators’ efforts to crack down on digital asset trading.
Solana sol and Cardano ADA Tokens are 26% up and 21% higher, while Algorand’s something and polygon matic Coins are up 12% and 9%, respectively. All four tokens were recently identified as securities in formal US Securities and Exchange Commission lawsuits against popular retail cryptocurrency exchanges, including Binance and Coinbase.
But Thursday’s summary ruling by US District Judge Annalisa Torres calls that designation 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 drawn-out courtroom battle over whether XRP, the world’s fourth-largest cryptocurrency, constitutes a security.
In 2020, the Securities and Exchange Commission alleged that Ripple, its CEO Brad Garlinghouse, and the company’s CEO violated securities laws when it sold $1.4 billion worth of XRP. Ripple has confirmed that its token is not a security – which has led to ongoing confusion over which digital currencies fall into which regulatory group.
The agency’s lawsuit against San Francisco startup Ripple has been viewed by many as a groundbreaking case for the broader industry – which could force the SEC to decide which of the nearly 20,000 cryptocurrencies fall under its jurisdiction.
In her ruling on Thursday, US District Court Judge Analisa Torres ruled that XRP in and of itself “There is not necessarily security on the face.”
This impressed industry participants, who saw the decision as a victory for both XRP and other coins.
“Federal Judge Annalisa Torres’ decision is historic as she defied the SEC into holding that Ripple’s XRP token is not an SEC-regulated security,” said Renato Mariotti, a former attorney general in the US Department of Justice’s Securities and Commodities Fraud Division. and now an experimental partner in Chicago with Bryan Cave Leighton Paisner.
“This ruling undermines the SEC’s assertion that nearly every token is a security and puts at risk some of the commission’s recent enforcement actions.”
Mariotti said the industry hopes Thursday’s move “could prompt Congress to adopt a more rational regulatory scheme.” But he added that uncertainty will continue in the absence of clear regulation.
However, the development caused excitement in the cryptocurrency market. Coinbase has already moved to re-list XRP Since Thursday.
The response from the cryptocurrency markets dates back to the cryptocurrency booms of 2021, when several bitcoin “alternatives,” or altcoins, rebounded sharply, following the largest cryptocurrency price bounce.
Cut is not clear
Judge Torres didn’t give Ripple a clean victory, however, ruling that some XRP sales do indeed constitute investment contracts that have passed the so-called “Howey test” — a legal assessment to determine whether or not an asset is a security.
It said that sales of XRP to institutional investors qualify as securities and must be registered with the Securities and Exchange Commission. This is because the investors participating in these sales have signed agreements, which means they have to lock in their tokens for a certain period of time.
Since they could not back out of trades, there was no possibility for XRP to be seen as anything other than a speculative investment.
On the other hand, Torres declared that “automated sales” of the token — or cryptocurrency exchange transactions with retail investors — do not qualify as securities.
“The judge declined to issue a summary ruling on the question of whether automated sales of XRP via exchanges constitute a sale of securities, which means that another lawsuit will be filed on that question,” said Cory Clepsten, CEO of Bitcoin Swan.com’s financial services firm. CNBC.
“I think secondary trading of altcoins will likely be allowed on exchanges, and that is consistent with the laws on the books.”
Much of the SEC’s recent actions against exchanges like Gemini, Binance, and Coinbase hinge on the assumption that the assets on the platforms are securities. Thus, listing them without SEC approvals translates to a violation of securities laws.
Thursday’s ruling could complicate the Securities and Exchange Commission’s (SEC) campaign against the exchanges, as it suggests that open-market cryptocurrency exchanges may not qualify for securities sales.
Cryptocurrency-related stocks such as Coinbase and MicroStrategy — which has heavily invested its balance sheet in bitcoin — are up 24% and 11%, respectively, as of Thursday’s close.
While Torres emphasized that XRP in and of itself is not a security, many investors seem to be missing the point — what makes an asset a security is not the asset itself, but the way it is sold or marketed.
It’s a more nuanced judgment than many in the industry deal with, and it’s worth noting that the issue is far from settled. There is a possibility that some of the findings could be appealed and invalidated, as the court is set to issue a separate order setting a trial date.
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