(Bloomberg) -- Cryptocurrencies rallied as digital-asset advocates touted a ruling from a federal judge in the US Securities and Exchange Commission’s lawsuit against Ripple Labs Inc. as a victory for the industry when it comes down to what is classified as a security.
XRP, the token at the center of the dispute, jumped as much as 37% to 64 cents, before paring gains. Other tokens that were recently labeled as unregistered securities by the SEC such as Solana and Cardano also increased, rising around 9.5% and 11%, respectively. Bitcoin edge higher, gaining about 1.6% to $30,847.
“This is a win for the crypto industry,” said Ashok Ayyar, a lawyer at Ashbury Legal. “It confirms that XRP the token is not an investment contract, and therefore a security, by itself.”
US District Judge Analisa Torres in New York on Thursday said that the crypto firm’s sales of the XRP token to sophisticated investors met the test for an investment contract under federal securities law.
“Institutional buyers would have understood that Ripple was pitching a speculative value proposition for XRP with potential profits to be derived from Ripple’s entrepreneurial and managerial efforts,” the judge wrote.
But Torres ruled that didn’t apply to programmatic investors, meaning the broader public. She said there was no evidence that such investors could parse the many statements made by Ripple about XRP. The judge said many statements cited by the SEC may not have been shared with the broader public.
“My overall impression is this is a positive decision for the digital asset industry,” said Daniel Tramel Stabile, partner at Winston & Strawn. “The court expressly concluded that XRP is not, in and of itself, a security. Instead, the focus must be on the circumstances of the offering itself.”
Whether cryptocurrencies are securities has been a major question hanging over the industry, which has long fought efforts to regulate it by arguing that they are not.
The SEC sued San Francisco-based Ripple and top executives in December 2020. It accused the company, co-founder Christian Larsen and Chief Executive Officer Bradley Garlinghouse of misleading investors in XRP by selling more than $1 billion worth of the tokens without registering them, depriving investors of information about the cryptocurrency and Ripple’s business.
Shares of Coinbase Global Inc., the largest US crypto exchange, rose as much as 11% to $95.32. The exchange is embroiled in a lawsuit with the SEC that alleges that it sold tokens that are unregistered securities.
“This underscores that direct sales of digital assets by an issuer will often be securities, but other sales, most notably sales on the secondary market, are unlikely to be deemed securities, which is a key argument in Coinbase’s defense against the SEC,” said Elliott Stein, Bloomberg Intelligence senior analyst.
--With assistance from David Pan and Chris Dolmetsch.
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