Ripple Labs achieved a partial victory in its case with the U.S. Securities and Exchange Commission (SEC) on July 13, 2023.
The U.S. District Court for the Southern District of New York ruled that the offer and sale of Ripple’s XRP token on digital asset exchanges and through algorithms did not amount to offers and sales of investment contracts, ruling that XRP is not a security.
However, the court also determined that XRP is a security when sold to institutional investors, as it met the conditions set in the Howey Test. The court found that Ripple first sold around $728.9 million worth of XRP directly to institutional buyers, hedge funds, and other parties. These “institutional sales” constituted the unregistered offer and sale of investment contracts in violation of federal securities law.
The SEC could not conclusively state that speculative investors had a reasonable expectation of profits to be derived from the entrepreneurial or managerial efforts of others, which led the court to the conclusion that programmatic sales of XRP did not qualify as the sale of securities.
After the court’s decision, Ripple’s XRP experienced a significant surge in both its market capitalization and price. The price of XRP skyrocketed, increasing by nearly 100% and reaching a peak of $0.938. Although it has since experienced a slight dip, at the time of writing, XRP is still maintaining strong performance, hovering around $0.8.
XRP is now the fourth-largest cryptocurrency by market capitalization after seeing a market cap surge of over $21 billion in only three hours to hit a new annual high of $46.1 billion.
The decision led to a rush of buying activity for XRP, causing U.S. crypto exchange Uphold to temporarily go down due to a spike in volume. Uphold was one of the few larger U.S.-based cryptocurrency exchanges that had continued to offer sales of XRP.
The ruling also sparked a wave of re-listing activity from U.S. exchanges, with Coinbase, Kraken, and iTrustCapital making XRP available for trading on their platforms. Gemini, a crypto exchange owned by the Winklevoss twins, hinted that it too will look to re-list XRP in the near future.
The SEC’s lawsuit against Ripple Labs began in December 2020, with the SEC alleging that Ripple was offering an unregistered security. The case has seen several dramatic turns over the past three years, including the release of the “Hinman Documents” and ongoing defiance from Ripple’s chief executives, Brad Garlinghouse and Chris Larsen.
The ruling has sparked commentary from key figures in the crypto community. Twitter KOL ricenbeats0x commented, “If listing XRP on exchanges doesn’t make it a security, the SEC’s case against Coinbase is toast.” Similarly, adamscochran.eth noted, “XRP was probably the easiest coin that the SEC could have used in the Coinbase case.”
Despite the ruling, legal experts suggest that it does not fully settle the question of whether and under what circumstances a digital asset meets the definition of a security under U.S. law.
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