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A visual representation of the digital cryptocurrency, XRP.
S3studio | Getty Images
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 32.90% at about 62 cents a coin, according to Coin Metrics. The news gave hope to crypto investors, who breathed a sigh of relief that other altcoins may not be considered securities after all. Polygon’s matic token gained 11%, while litecoin and the token tied to Solana jumped 8%, and Cardano’s token advanced 7%. Bitcoin and ether got a boost too, of 2% and 3%, respectively.
“The judgements today are a huge step forward for the industry,” Chris Martin, head of research at Amberda, 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.”
“The judgement 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,” he added. “For exchanges caught in ongoing SEC cases, it’s not clear how this judgement will effect 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 judgements.”
XRP surges after judge rules it’s not a security
The news marks the end of a three-year battle between Ripple and the Securities and Exchange Commission, which initiated a lawsuit against the company in 2020 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 macro environment and have spent the past several weeks under immense pressure from U.S. regulators. That scrutiny includes lawsuits by the SEC against Binance and Coinbase.
Coinbase shares were last up 8% after the ruling.
A complex ruling
Investors are upbeat the ruling Thursday but it’s not as simple as it seems on the surface and 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 is divided into three sets of factual circumstances regarding 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” and “the Other Distributions do not satisfy Howey’s first prong that there be an ‘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 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 is a win for Ripple, Palley said.
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