Ripple’s XRP token surged on Thursday after a judge in the Southern District of New York ruled that it’s “not necessarily a security on its face.”
The price of XRP was last higher by 71% at about 80 cents a coin, according to Coin Metrics. The news gave hope to crypto investors, who breathed a sigh of relief that other altcoins also may not be considered securities after all. Polygon’s matic token gained 17.82%. Litecoin and the Solana jumped 18.35%, and Cardano’s token advanced 20.31%. Bitcoin and ether got a boost too, rising more than 4% and 6%, respectively.
“The judgments today are a huge step forward for the industry,” Chris Martin, head of research at Amberdata, told CNBC. “By judging that XRP is not a security we’re starting to get clarity on what constitutes a security and what constitutes a commodity — the SEC will have to revise their tactics on several of their ongoing cases and I expect that this judgment will implicate several other tokens as non-securities.”
Coinbase, which had previously de-listed XRP on its trading platform, tweeted on Thursday afternoon that it would now allow trading of the asset again. Gemini said it’s “exploring the listing of XRP for both spot and derivatives trading.”
“The judgment that institutional sales of XRP by Ripple constitute securities also has massive implications for the industry with several ICO’s now likely in the spotlight,” Martin added. “For exchanges caught in ongoing SEC cases, it’s not clear how this judgment will affect them – they’ve only been involved in secondary sales for the most part. But as we can see with prices today, the market is very bullish on the judgments.”
The news marks the latest development in a three-year battle between Ripple and the Securities and Exchange Commission. There is a possibility that some of these findings could be appealed and reversed. Indeed, the filing said that the court would issue a separate order setting a trial date.
In 2020, the SEC sued Ripple for breaching U.S. securities laws by selling XRP without first registering it with the agency.
The decision was widely seen as a key hurdle to clear in the second half of 2023 as crypto assets are still still contending with a challenging macroeconomic environment and have spent the past several weeks under immense pressure from U.S. regulators, highlighted by lawsuits brought by the SEC against Coinbase and Binance in June.
Coinbase shares were last up more than 24% after the ruling on optimism the company could prevail in its own battle with the SEC. Robinhood and Block, both of which offer crypto trading services, rose 4.3% and 7%, respectively. Bitcoin proxy Microstrategy gained almost 12%. Miners surged double digit percentages.
A complex ruling
Investors are upbeat about Thursday’s ruling, but it’s not a clear-cut victory. The notion that XRP is plainly not a security is wrong, according to Stephen Palley, a partner at Brown Rudnick.
Still, he added, “if I were an XRP holder, I’d be happy right now.”
The ruling was divided into three sets of factual circumstances surrounding sales of XRP: institutional sales, programmatic sales and “other distributions,” such as employee compensation.
The court sided with the SEC when it came to “Ripple’s Institutional Sales of XRP to sophisticated individuals and entities,” saying they were securities transactions and constituted an investment of money. Ripple won when it came to “programmatic” sales, however, or sales made through trading algorithms, as well as other distributions.
“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” at the same time as the “other distributions” didn’t demonstrate the ”‘investment of money’ as part of the transaction or scheme,” the filing said.
Palley highlighted another significant issue: whether or not crypto exchanges like Coinbase need to themselves register as securities exchanges. The SEC has been clear that most crypto assets being traded should be considered securities. However, the court didn’t reach a conclusion on the matter, which was another win for Ripple, Palley said.
