Ripple Labs’s partial legal victory against the SEC last week, following the dismissal of some charges against the company, represents a rare upset for the Commission in court and a significant beam of support for exchanges who reject the regulator’s claims that they are dealing unregistered securities. The ruling stated that, not only was the XRP digital token “not in and of itself a ‘contract, transaction[,] or scheme’ that embodies the Howey requirements of an investment contract”, but also that the issuer’s algorithmic sales on exchanges could not be considered a securities offering since the buyers did not know they were purchasing XRP from Ripple.
Prices of cryptocurrencies that have recently been targeted as securities in SEC lawsuits surged in the wake of the Ripple ruling, along with shares of Coinbase – a key defendant that is prepared to give the SEC its next bitter court fight in a separate suit. The remaining claims against Ripple will continue toward a full trial or settlement throughout the weeks and months to come.
Related Assets: XRP (XRP-USD), Coinbase Global, Inc. (COIN)
Several major cryptocurrencies surged last week, following a judgement that was partially in favor of Ripple Labs, the issuing company and payment settlement system of the XRP token, in a Securities and Exchange Commission (SEC) lawsuit against the company. Now the fourth-largest cryptocurrency by market cap, XRP surged by more than 85% in the hours following the ruling as 24-hour trading volume of XRP increased 18-fold, from $613 million to $11.2 billion on Thursday into Friday.
The case was initially filed way back in December 2020, long before the latest wave of SEC enforcement actions, which includes ongoing suits against major exchanges Coinbase and Binance, began labeling dozens of other tokens unregistered securities in court documents. The SEC’s charge that XRP was a security and, therefore, an unregistered one since the company has never registered XRP sales with the commission despite offering the token as a potential investment contract to the general investor public, could have set a critical precedent that would underlie future cases against other crypto projects.
Prior to the suit, Ripple was widely viewed as a natural target for the SEC, considering XRP’s structure is relatively centralized and could suggest similarities to some kind of perpetual security offering. The entirety of XRP’s 100 billion token supply was “pre-mined” or created instantaneously by Ripple and has been distributed gradually via escrow at a planned pace of one billion XRP each month. The company, however, maintains the ability to return a certain amount of those tokens into a new escrow, which it usually does. In practice, XRP is meant to function as a real-time gross settlement (RTGS) system, which is a specialist money transfer and remittance network that boasts a settlement time of just 3-5 seconds. XRP’s ledger can consistently handle 1,500 transactions per second aims to connect financial institutions to blockchain-based payments and settlement.
The SEC’s enforcement action brought suit over Ripple’s sale of more than $1.4 billion worth of the XRP digital tokens. Roughly half of the sales were made directly to institutional investors, while a similar portion of sales were so-called “blind bid/ask transactions,” in which the company…
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