In this photo illustration, a visual representation of the digital Cryptocurrency Ripple is displayed on January 30, 2018 in Paris, France.
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Ripple’s XRP token experienced a 68% increase in the last 24 hours, leading a broader rally of major-cap altcoins. This surge comes as crypto traders digest a significant ruling that could impact U.S. regulator efforts to control digital asset trading.
Solana’s SOL and Cardano’s ADA tokens have risen by 26% and 21% respectively, while Algorand’s ALGO and Polygon’s MATIC coins are up by 12% and 9% respectively. These four tokens were recently identified as securities by the U.S. Securities and Exchange Commission (SEC) in its formal lawsuits against popular crypto retail trading platforms including Binance and Coinbase.
However, U.S. District Judge Analisa Torres’ summary judgment on Thursday raises questions about this classification.
For three years, the SEC and Ripple Labs have been engaged in a prolonged courtroom battle over whether XRP, the fourth-largest cryptocurrency, should be considered a security. In 2020, the SEC alleged that Ripple and its executives violated securities laws by selling $1.4 billion worth of XRP. Ripple has maintained that its token is not a security, leading to ongoing confusion regarding the regulatory status of various digital coins.
The agency’s lawsuit against Ripple has been viewed as a pivotal case for the broader crypto industry and its relationship with the SEC. Many industry participants believe that this case could force the SEC to define its jurisdiction over the thousands of existing cryptocurrencies.
In her judgment, Judge Analisa Torres ruled that XRP is “not necessarily a security on its face.” This decision has been seen as a victory for XRP and other coins, challenging the SEC’s assertion that most tokens are securities. It also puts some of the SEC’s recent enforcement actions at risk.
The industry sees the Thursday ruling as a potential catalyst for adopting a more rational regulatory framework. However, due to the absence of clear regulations, uncertainty will still prevail.
Despite the ongoing legal proceedings, the crypto market has responded with excitement to the news. Coinbase has already relisted XRP since Thursday.
This development evokes memories of the crypto boom in 2021 when alternative cryptocurrencies rallied alongside Bitcoin.
Not clear cut
Judge Torres did not provide Ripple with an outright victory but ruled that some XRP sales did constitute investment contracts that pass the “Howey test,” a legal assessment used to determine whether an asset is a security.
Institutional investors who participated in those sales were required to lock up their tokens for a specified period, making them qualify as securities. However, Judge Torres stated that “programmatic sales” of XRP, such as crypto exchange transactions with retail investors, do not qualify as securities.
This ruling could complicate the SEC’s campaign against exchanges, as it suggests that crypto exchanges conducted on the open market may not be considered securities sales.
It is essential to note that the distinction between security and non-security assets lies in the manner of their sale and marketing, rather than the assets themselves. This judgment is more nuanced than perceived by many in the industry, and the case is far from settled, as there is a possibility of appeals and a separate order setting a trial date.
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