Ripple’s XRP token experienced a remarkable surge of 71% after a judge in the Southern District of New York ruled that it is “not necessarily a security on its face.” This news brought hope to crypto investors, who also saw gains in other altcoins, including Polygon’s matic, Litecoin, Solana, and Cardano’s token, which all recorded substantial increases. The positive sentiment extended to Bitcoin and Ether, which rose by more than 4% and 6%, respectively. Industry experts hailed the ruling as a significant step forward for the crypto industry, providing much-needed clarity on the distinction between securities and commodities and potentially influencing other ongoing SEC cases involving different tokens.
In 2020, the Securities and Exchange Commission (SEC) filed a lawsuit against Ripple, alleging that the company violated U.S. securities laws by selling XRP without registering it with the agency.
The recent court decision regarding the lawsuit was considered a critical obstacle to overcome in the latter part of 2023, given the ongoing challenges faced by crypto assets amidst a complex macroeconomic landscape. Furthermore, the crypto market has been under significant scrutiny from U.S. regulators, exemplified by the SEC’s lawsuits against major platforms like Coinbase and Binance in June.
The recent ruling in the XRP case is intricate and has left investors with mixed sentiments. Stephen Palley, a partner at Brown Rudnick, refutes the idea that XRP is unquestionably not a security.
Nevertheless, Palley added, “If I were an XRP holder, I’d be happy right now.”
The court’s decision was segmented into three categories based on the circumstances surrounding XRP sales: institutional sales, programmatic sales made through trading algorithms, and other distributions, such as employee compensation.
Regarding “Ripple’s Institutional Sales of XRP to sophisticated individuals and entities,” the court agreed with the SEC, classifying them as securities transactions involving an investment of money. On the other hand, Ripple emerged victorious in the case of “programmatic” sales and other distributions.
The court stated, “Having considered the economic reality and totality of circumstances, the Court concludes that Ripple’s Programmatic Sales of XRP did not constitute the offer and sale of investment contracts,” while the “other distributions” didn’t demonstrate the “‘investment of money’ as part of the transaction or scheme.”
Palley also highlighted another crucial matter – whether crypto exchanges like Coinbase need to register as securities exchanges. The SEC has previously asserted that most crypto assets being traded should be regarded as securities. However, the court did not reach a conclusion on this issue, which Palley considers another victory for Ripple.