The ruling that XRP, a currency connected to Ripple Labs, isn’t a security when offered for sale to the public programmatically on digital asset exchanges has delighted proponents of cryptocurrencies.
According to the most recent check, the price of XRP increased by about 70% on Thursday to approximately $0.78, which is the highest level since around December 2021. Many other well-known cryptocurrencies also increased.
However, Ripple’s direct sales to sophisticated institutional investors would be considered an unregistered sale of investment contracts, in violation of federal law, according to U.S. District Judge Analisa Torres. This decision is a partial victory for those who have argued that XRP isn’t a security.
We are delighted that the court determined that Ripple promoted and sold XRP tokens as investment contracts in some instances in violation of the securities laws, a Securities and Exchange Commission representative told.
Analysts predict that the court’s ruling on XRP, while based on the specific facts of the case, will bolster other cryptocurrency companies battling the SEC over the agency’s authority over their goods.
Securities or not? That’s a question
One of the main pillars of the SEC’s regulatory approach is whether or not cryptocurrencies are “securities.” Securities that are offered to the general public must be registered with the SEC, which mandates that regular financial reports and information about the company’s operations and potential hazards be given to investors.
The majority of cryptocurrencies, according to Gary Gensler, chairman of the Securities and Exchange Commission, are securities and should be regulated by his organisation. The only digital asset that the chairman has referred to as a commodity and not a security is bitcoin, the first and biggest cryptocurrency by size.
The SEC most recently brought legal action against digital asset exchanges Coinbase Global Inc. and Binance. The SEC charged both exchanges with offering crypto securities to the public without issuers having registered those securities with the agency, among other charges.
Numerous cryptocurrencies, including Solana, Cardano, Polygon, Filecoin, Algorand, and Axie Infinity, were identified as securities by the SEC in lawsuits.
Importance of the Ripple case
The SEC sued Ripple and two of its executives in 2020, claiming they had broken securities laws when they sold XRP to raise more than $1.3 billion. This is when the Ripple case first surfaced.
According to Sheila Warren, CEO of the crypto advocacy group Crypto Council for Innovation, it has been obvious since this case was filed that it will affect the entire sector.
Judge Torres stated in the court document that the digital coin XRP is not in and of itself a “contract, transaction[,] or scheme” that meets the Howey standards for an investment contract. Instead, the Court considers the entirety of the circumstances underlying the various transactions and schemes involving the sale and distribution of XRP that the Defendants have engaged in.
The Howey Test refers to a U.S. Supreme Court decision used to determine whether a transaction meets the criteria for classification as a “investment contract” and will therefore be treated as a security.
According to Warren, Judge Torres’ decision fundamentally refutes the SEC’s claim that it has jurisdiction over these underlying assets and that there is already regulatory certainty.
Warren said that she sees the decision as a huge thaw in the regulatory permafrost that the United States has been locked in. This is certainly a call to action to Congress and will light a fire under current proposals, she said.
The SEC’s assertion that it has jurisdiction over these underlying assets and that there is already regulatory certainty is fundamentally refuted, according to Warren .
Markets are reading the XRP decision as an indication that leading altcoins may pass regulatory test, as we can see from today’s activity, according to Michael Safai, managing partner at Dexterity Capital. Typically, the term “altcoin” refers to crypto other than bitcoin.
Nevertheless, speculators, who view this as an opportunity to purchase inexpensive assets with potential upside, are likely responsible for some of the price increase. Safai sent emails with remarks.
The market as a whole is feeling upbeat yet cautious. Although regulatory certainty is still a ways off, Safai highlighted that this is a hint that we will see some significant resolution soon.
The head of product at CoinShares, Townsend Lansing, agreed that there was still regulatory ambiguity. According to Lansing, the court’s decision on XPR and Ripple shows how the regulation of cryptocurrencies is both ongoing and dynamic.
According to Reuters, the decision might be appealed on Thursday.
