(Bloomberg) — Cryptocurrencies have rebounded as digital asset advocates touted a federal judge’s ruling in the US Securities and Exchange Commission’s lawsuit against Ripple Labs Inc. It is a victory for the industry when it comes to what qualifies as a security.
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XRP, the token at the center of the dispute, jumped as much as 80% to 84 cents. Other tokens that were recently classified as non-registered securities by the SEC such as Solana and Cardano also increased, rising around 16% and 18% respectively. Bitcoin edge is higher, gaining about 3% to $31,339.
“This is a win-win for the cryptocurrency industry,” said Ashok Aiyar, a solicitor at Ashbury Legal. “It confirms that the XRP token is not an investment contract, and therefore a security in itself.”
U.S. District Judge Annalisa Torres in New York said Thursday that the crypto company’s sale of its XRP token to sophisticated investors has passed the investment contract test under the federal securities law.
“Institutional buyers would have understood that Ripple was making a speculative value proposition for XRP with potential profits to be gained from Ripple’s regulatory and administrative efforts,” the judge wrote.
But Torres ruled that did not apply to automated investors, which means the broader public. She said there was no evidence that these investors could analyze the many statements Ripple has made about XRP. The judge said many of the statements cited by the SEC may not have been shared with the broader public.
“My overall impression is that this is a positive decision for the digital asset industry,” said Daniel Tramell-Stabile, partner at Winston & Strawn. “The court expressly concluded that XRP is not in itself a security. Instead, the focus should be on the circumstances of the show itself.”
Since 2017, alleged Ripple sales have accounted for less than 1% of global XRP trading volume, according to a court filing Thursday. Therefore, the document said that the vast majority of individuals who bought XRP from digital asset exchanges did not invest their money in Ripple at all.
“Therefore, after considering the economic reality and the totality of the circumstances, the Court concludes that Ripple’s automated sale of XRP does not constitute an offer and sale of an investment contract.”
Whether cryptocurrencies are securities has been a major question hanging over the industry, which has long battled efforts to regulate them by arguing that they are not.
The San Francisco-based Ripple and its top executives were sued by the Securities and Exchange Commission (SEC) in December 2020. It accused the company, co-founder Kristian Larsen, and CEO Bradley Garlinghouse of misleading investors in XRP by selling more than $1 billion worth of tokens without signing them up, depriving them of Investors information about the cryptocurrency and the business of Ripple.
Shares of Coinbase Global Inc. rose. , the largest cryptocurrency exchange in the United States, up 18% to $101.31. The exchange is involved in a lawsuit with the Securities and Exchange Commission alleging that it sold tokens that are unregistered securities.
“This confirms that direct sales of digital assets by an issuer are often securities, but other sales, particularly sales in the secondary market, are unlikely to qualify as securities, a key argument in Coinbase’s defense against the SEC,” Elliott said. Stein, senior analyst for Bloomberg Intelligence.
— with assistance from David Pan and Chris Dolmich.
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