Ripple’s XRP token experienced a remarkable surge on Thursday, propelled by a significant ruling from a judge in the Southern District of New York. The judge determined that XRP is “not necessarily a security on its face.” This favorable decision ignited a wave of optimism among crypto investors, who were relieved by the possibility that other alternative coins might also escape classification as securities. As a result, the price of XRP soared by 71% to approximately 80 cents per coin, according to Coin Metrics. Other cryptocurrencies, such as Polygon’s matic token, Litecoin, Solana, and Cardano, also experienced notable gains, with increases of 17.82%, 18.35%, 18.35%, and 20.31% respectively. The positive momentum extended to Bitcoin and Ether, which rose by over 4% and 6% respectively.
Chris Martin, head of research at Amberdata, hailed these judgments as a significant stride forward for the industry, asserting that the ruling on XRP’s security status provides much-needed clarity on the distinction between securities and commodities. Martin also anticipated that the judgment would impact several ongoing cases and potentially exempt various tokens from being classified as securities. In response to the ruling, Coinbase announced via Twitter that it would resume trading XRP, reversing its previous delisting decision. Additionally, Gemini revealed its intentions to explore the listing of XRP for both spot and derivatives trading.
Martin further emphasized the profound implications of the judgment, noting that it could potentially shed light on the status of institutional sales of XRP by Ripple, which could be regarded as securities. This, in turn, might bring other initial coin offerings (ICOs) into the regulatory spotlight. While the ruling’s effect on exchanges involved in ongoing SEC cases remains uncertain, the bullish market response to the judgments clearly illustrates the market’s optimism.
This development marks a significant milestone in the three-year legal battle between Ripple and the Securities and Exchange Commission. It is important to acknowledge that these findings may still be subject to appeal and reversal, as the court is expected to issue a separate order establishing a trial date. The SEC had previously sued Ripple in 2020, alleging that the company violated U.S. securities laws by selling XRP without proper registration.
The ruling represents a crucial breakthrough for the crypto industry, particularly amidst a challenging macroeconomic environment and ongoing scrutiny from U.S. regulators. Notably, the SEC’s lawsuits against Coinbase and Binance in June intensified the pressure on crypto assets. Following the ruling, Coinbase’s shares surged by more than 24% as optimism grew regarding the company’s own legal battle with the SEC. Other crypto service providers, such as Robinhood and Block, experienced increases of 4.3% and 7% respectively. The ruling also had a positive impact on related sectors, with Bitcoin proxy Microstrategy gaining almost 12% and mining companies witnessing double-digit percentage surges.
A complex ruling
Investors are highly optimistic about Thursday’s ruling, although it should be noted that it is not an unequivocal victory. Contrary to the belief that XRP is unquestionably not a security, Stephen Palley, a partner at Brown Rudnick, argues that this notion is incorrect. Nonetheless, Palley acknowledges that if he were an XRP holder, he would be pleased with the current outcome.
The ruling itself delves into three distinct categories of factual circumstances relating to the sale of XRP: institutional sales, programmatic sales, and other distributions, including employee compensation. In terms of “Ripple’s Institutional Sales of XRP to sophisticated individuals and entities,” the court sided with the SEC, affirming that these were indeed securities transactions involving an investment of money. However, Ripple emerged victorious in the case of programmatic sales, which encompassed sales conducted through trading algorithms, as well as other distributions.
The court’s filing states that after carefully considering the economic reality and totality of circumstances, it concludes that Ripple’s Programmatic Sales of XRP did not constitute the offer and sale of investment contracts. Similarly, the court found that the “other distributions” did not demonstrate an “investment of money” as part of the transaction or scheme.
Another significant aspect emphasized by Palley is the question of whether crypto exchanges such as Coinbase should be required to register as securities exchanges themselves. While the SEC has been clear in asserting that most traded crypto assets should be considered securities, the court did not come to a definitive conclusion on this matter. This outcome also represents a favorable outcome for Ripple, according to Palley.