Markets Rally After U.S. Judge Says Ripple Is Not A Security

Crypto markets are soaring after a U.S. court ruled that Ripple’s XRP is not a security.

“XRP, as a digital token, is not in and of itself a ‘contract, transaction or scheme’ that embodies the Howey requirements of an investment contract,” wrote Judge Analisa Torres, who is overseeing a major case between the SEC and the issuers of the digital asset. The Howey Test is a legal framework used to determine if an investment offering constitutes a security.

The news sent XRP soaring — the digital asset surged over 55% to $0.73 in a matter of hours.

Ether is up over 6%, trading above $2,000 for the first time since early May. Bitcoin also jumped nearly 2% to $31,100. And the overall market capitalization of the crypto industry is up 4.9% in the past 24 hours to nearly $1.29T.

The defendants – Ripple Labs Inc., Brad Garlinghouse, and Chris Larsen – have been mired in legal proceedings with the SEC since 2020.

The price action speaks to just how much the legal and regulatory scrutiny that has blanketed the crypto industry this year has dampened market sentiment. The SEC sued major exchanges Coinbase and Binance last month for allegedly violating securities laws.

Major tokens named in the lawsuits, like ADA, SOL, and MATIC, have all posted double-digit percentage gains, suggesting that investors and traders are looking at today’s ruling as a bellwether for the legal standing of the entire digital asset space.

To be sure, the judge didn’t clear Ripple of all violations — the ruling singled out Ripple’s institutional sales efforts as constituting investment contracts and violating securities laws.

Conversely, the judge ruled that Ripple’s “programmatic sales,” were not an investment contract. Programmatic sales means making XRP available on exchanges where buyers could purchase the digital asset.

The ruling made clear the distinction — “An Institutional Buyer knowingly purchased XRP directly from Ripple pursuant to a contract, but the economic reality is that a Programmatic Buyer stood in the same shoes as a secondary market purchaser who did not know to whom or what it was paying its money.”

Caitlin Long, CEO and co-founder of Custodia Bank, which provides payment rails and custody for digital assets, thinks that the judge’s ruling will push U.S. lawmakers to develop legislation specific to the crypto space.

The crux of the current battle between U.S. government bodies, and particularly the SEC, is that current laws are adequate to regulate the digital asset space. On the other hand, those involved in the industry contend that current laws don’t account for the unique situations which arise from the use of public blockchains.

Looking ahead, Bill Hughes, a lawyer at Consensys, a major company building blockchain-adjacent products since 2014, thinks it very likely that the SEC will appeal the ruling.