Maria Irene
In a precedent-setting ruling with significant implications for the global digital asset community, Ripple (the company behind XRP, the fourth largest cryptocurrency by market cap) scored a significant legal victory against the US Securities and Exchange Commission (SEC). The US courts have asserted that digital assets are not automatically securities, in turn sending ripples through the crypto community, signaling an end to months of anxiety and uncertainty.
The SEC had previously accused Ripple Labs, its CEO Brad Garlinghouse, and co-founder Chris Larsen of raising over $1.38 billion through an unregistered, ongoing digital asset securities offering. The SEC believed Ripple’s XRP token should be treated as a security, and therefore subject to strict securities laws.
However, the court ruled that XRP, as a digital token, does not satisfy the requirements of the Howey test and, therefore, is not a security. The Howey test, a legal precedent established in 1946, is used to determine whether certain transactions qualify as investment contracts. If so, they are considered securities.
This groundbreaking decision now establishes a crucial precedent for exchanges and other digital asset ventures. Top gainer Coinbase, amongst others, may utilize this ruling to fortify their legal stand against the SEC, providing a breath of fresh air to the beleaguered crypto exchanges currently facing the regulatory watchdog’s scrutiny.
Despite the victory, the court did uphold the SEC’s claim that some of Ripple’s “Institutional Sales” of XRP were investment contracts and thus, the sale of unregistered securities. This indicates that the case against Ripple’s institutional sales will proceed. The SEC is reportedly keen on clawing back the $729M raised from institutional sales and prevent Ripple from offering or selling any additional XRP.
The ripple effects of this judgement extend beyond the immediate parties involved. It is a resounding message to the regulatory bodies attempting to shoehorn digital assets into conventional regulatory frameworks, a practice seen by many as stifling the innovative potential of cryptocurrencies.
Binance Founder CZ (Changpeng Zhao) emphasized the broader implications of the judgement, saying, “It’s less about winning or losing, it’s about being on the right side of the people.” This sentiment was echoed by Ripple CEO Brad Garlinghouse, who said, “We said in Dec 2020 that we were on the right side of the law, and will be on the right side of history. Thankful to everyone who helped us get to today’s decision – one that is for all crypto innovation in the US. More to come.”
For now, the crypto world awaits the next chapter in this saga. Regardless of the future twists and turns, this case will likely be a landmark event in the evolution of digital asset regulation and a significant step towards global acceptance of digital currencies. The hope is that this precedent will encourage regulatory bodies to consider more nuanced approaches to digital assets, recognizing their unique characteristics, and the transformative potential they hold for the financial world.
