Ripple Effects: How an “Alternate Coin” Breathes New Life into Crypto

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Crypto prices rose after a partial legal victory for token issuer Ripple. The time of dreams

A little-known token outside of crypto circles has delivered a huge win for the industry, potentially stopping the government crackdown on digital assets in its tracks.

Late Thursday and early Friday, crypto executives celebrated a partial victory for Ripple Labs over the Securities and Exchange Commission in federal district court. The SEC had sued Ripple alleging, among other things, that a token supported by the company called XRP is a security. While the judge sided with the SEC on some transactions, she determined that the token, by itself, did not meet that definition.

While Ripple has yet to fight parts of the case at trial, the implications for the industry and for the SEC’s crackdown are greater. Digital asset exchanges, including Coinbase Global (ticker: COIN) and Binance, will use the ruling to try to thwart recent lawsuits the SEC has filed against them. Issuers of XRP-like tokens, widely known as alt coins, are citing the case in their own defenses, and trading platforms that had avoided listing these tokens for fear of prosecution will now reconsider their decision, which will likely strengthen alt coin prices.

The XRP token itself jumped almost 70% in the last 24 hours, followed by many other non-Bitcoin cryptos: Ether prices rose 6%, Dogecoin rose 7%, and names beat such as Solana and Cardano grew by 26% and 21%, respectively.

There’s no way to view this decision as anything more than a victory for the industry and a blow to the SEC’s crypto enforcement program, said Arnold & Porter attorney Christian Schultz, who works for crypto clients and is a former attorney for the SEC’s Enforcement Division.

Ripple Labs was founded over a decade ago with the promise of using open-source payment software and XRP to enable low-cost transactions. The company and its executives have raised funds in part by selling billions of XRP tokens to investors.

In 2020, the SEC sued the company and two executives in federal court in the Southern District of New York, accusing them of conducting a $1.3 billion unregistered securities offering. Some exchanges, including Coinbase, almost immediately suspended trading in the token on their platforms.

The main uncertainty, for Coinbase, Ripple and other companies, was that if judges determined that XRP fell under securities laws, the companies would have to register with the agency or face heavy fines.

Coinbase and others have said for years that they don’t believe there is a clear path under current rules to register with the SEC. If the tokens similar to XRP were securities, they might have had to suppress a growing part of their activity.

Judge Analisa Torres did much to allay these concerns in the Ripple case. She said that XRP, by itself, is not a security and the status of a token depends on how it is sold.

Early sales to institutional investors who knew they were buying from Rippledid are considered securities, the judge said, while on-exchange sales to other investors who could not have known Ripple had received the money were not.

The SEC declined to comment on Friday. On Thursday, a spokesperson for the agency said the SEC was satisfied with some aspects of the judges’ decision and would continue to review it.

Ripple executives claimed victory on Twitter.

The ruling came as a relief to Coinbase investors, whose clients appear to be in similar circumstances to Ripple investors that the judge said fall outside the scope of securities law.

Coinbase stock fell 1.6% to $105.31 on Friday after rising more than 20% on Thursday after the decision.

We believe a major overhang on the stock is regulatory uncertainty. With this summary judgment, we think some of this is risk-free, Needham & Co. analyst John Todaro wrote in a research note Friday, which has a buy rating on Coinbase and raised its target. priced at $120 vs. $70.

Some crypto proponents also believe the judges’ ruling could jump-start congressional efforts to pass legislation to regulate digital assets.

House Republican lawmakers plan to move forward this month on bills that would create rules for exchanges and tokens. They had run into skepticism from some Democrats and SEC Chairman Gary Gensler, who argued the industry could be policed ​​under current rules.

That argument no longer works, said Kristin Smith, CEO of the Blockchain Association, an industry trade group. Democrats are going to realize that if they want consumer protection in this space, they’re going to have to act.

The judges’ decision in the Ripple case is not the final word. The SEC could seek to appeal, a process that could take years. Moreover, Gensler, who has aggressively sued crypto firms, is unlikely to give up simply because of a judge’s ruling, said Isaac Boltansky, director of policy research at BTIG.

It’s a clear win for the crypto industry, but the move shouldn’t be seen as a panacea, Boltansky said, adding that it’s a tall order for Congress to pass crypto-related legislation. crypto anytime soon.

But until then or until another judge overturns the decision, the crypto market gets a long-awaited shot in the arm.

Email Joe Light at [email protected] and Jack Denton at [email protected]

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