How XRP’s legal win shapes the future of digital assets

How XRP's legal win shapes the future of digital assets
Credit Unsplash

The cryptocurrency industry witnessed a historic moment as Ripple Labs Inc secured a resounding triumph in its legal tussle against the U.S. Securities and Exchange Commission (SEC).

On a momentous day, July 13, the highly anticipated ruling by U.S. District Judge Analisa Torres vindicated Ripple, declaring that the company had not violated federal securities law through the sale of its XRP token on public exchanges.

The decision reverberated across the market, setting XRP on a soaring trajectory with a remarkable 75% surge in value on the very same day, according to data from CoinMarketCap.

This win marks the first time a cryptocurrency company has successfully defended itself against the SEC’s allegations, setting a precedent that could bolster other crypto firms currently locked in battles with the regulatory agency over their token classifications.

The SEC, however, did secure a partial victory as the judge held that Ripple violated federal securities law by selling XRP directly to sophisticated investors.

NOW READ: Interest rate hikes and what this means for the City of London

While the ruling is specific to the unique circumstances of the case, it has ignited hope among the cryptocurrency community, which has long been at odds with the SEC’s assertion that the majority of crypto tokens are securities and thus subject to stringent investor protection regulations.

Over the years, the SEC has initiated more than 100 enforcement actions against various tokens, often claiming they fall under the category of securities, but many of these cases have ended in settlements.

However, the XRP case went to court, and Judge Torres ruled in favor of Ripple by stating that XRP sales on public cryptocurrency exchanges were not considered offers of securities.

She argued that purchasers did not have a reasonable expectation of profit tied to Ripple’s efforts, characterising the sales as “blind bid/ask transactions” in which buyers were unaware of whether their payments went directly to Ripple or other sellers of XRP.

To reach her decision, Judge Torres referred to a U.S. Supreme Court case, which established that an “investment of money in a common enterprise with profits to come solely from the efforts of others” constitutes an investment contract and thus a security.

In this context, XRP sales on cryptocurrency platforms, including those by Ripple’s top executives, were not deemed securities.

On the other hand, the SEC is not taking the ruling lying down. On July 23, the agency filed new documents in its lawsuit against Terraform Labs and its CEO, Do Kwon, arguing that the Ripple decision was flawed and suggesting the possibility of an appeal.

The SEC now claims that the ruling in the Ripple case was inconsistent, as it found XRP offerings to retail investors as not violating securities laws, but did find violations when it came to institutional investors.

The legal victory for Ripple has given Coinbase, the largest U.S. cryptocurrency exchange, newfound hope in its ongoing SEC case. Legal experts believe that the ruling will serve as a vital precedent for other companies battling similar accusations regarding registration requirements and the classification of digital assets as securities under U.S. law.

The crypto industry, recognising the urgent need for clear regulatory guidelines, is calling on Congress to step in and provide much-needed legislation for tokens.

The ruling’s market impact has amplified the urgency of this call. House of Representatives Majority Whip Tom Emmer, a Republican, emphasised the need for a regulatory framework in a post on Twitter, stating that the ruling establishes tokens as separate from investment contracts and urging Congress to make this distinction legally binding.

As the SEC reviews the decision and contemplates its next moves, the entire cryptocurrency market eagerly awaits the implications of the ruling and its potential reverberations on other cases involving the SEC.

While the victory brings hope for a more clarified regulatory landscape in the U.S., the possibility of an appeal or further legal challenges remains on the horizon. In the meantime, the cryptocurrency community is keeping a close eye on how this landmark ruling will shape the future of digital assets and their place in the broader financial system.

“Not financial advice: The Information contained in or provided from or through this article is not intended to be and does not constitute financial advice, investment advice, trading advice, or any other advice.”

For the latest headlines from the City of London and beyond, follow City Matters on TwitterInstagram and LinkedIn.