XRP Court Ruling Marks Important Milestone, But New Crypto Law Could Take Years

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The recent court ruling that the Ripples XRP token (XRP) is not considered a security when sold on digital asset exchanges has sparked a wave of positive sentiment in the cryptocurrency ecosystem.

Stuart Alderoty, Ripple’s chief legal officer, told Cointelegraph that he thinks the most important part of this ruling is that the court unequivocally stated that XRP is not, per se, a security. Given this, Alderoty noted that the XRP decision is now a matter of law and cannot be judged.

Additionally, other findings that are not subject to trial include the following: sales on exchanges are not securities, sales by executives are not securities, and other XRP distributions to developers, charities and employees are not securities. The courts’ decision can now also be used by others in the SEC’s sights, he said.

We said in December 2020 that we were on the right side of the law and we will be on the right side of history. Thank you to everyone who helped us make today’s decision, which affects all crypto innovations in the United States. More soon.

— Brad Garlinghouse (@bgarlinghouse) July 13, 2023 Ruling doesn’t ensure clear regulations

While the XRP court ruling marks an important milestone for the entire crypto industry, Alderoty noted that he hopes Congress will use the ruling to create a clear regulatory framework going forward. There will be further legal proceedings as per the court order and we are assessing next steps, he said.

The US Securities and Exchange Commission (SEC) can appeal the XRP decision. Lewis Cohen, co-founder of DLx Law, a law firm specializing in crypto assets and blockchain technology, told Cointelegraph that the SEC could overturn the decision on appeal once it becomes final. They may also bring similar actions in other federal districts seeking alternative results, he said.

A blog post from the law firm Holland & Knight expands on this notion. The firm says that if the courts grant summary judgment on certain aspects of the case signals a certain finality with respect to the jurisdictional scope of the SEC (or lack thereof), an appeal would be considered interlocutory at this stage, as the court has not ruled on the case in its entirety.

Yet the post further notes that while interlocutory appeals are permitted, they are rarely granted in practice. So, it could take months or even years if the SEC decides to appeal the court’s decision.

Additionally, whether other digital assets sold on exchanges should be considered securities remains debatable. The Holland & Knight blog post indicates that Judge Torres specifically declined to expand her opinion to secondary market sales of XRP or other tokens, which could create new conflicts in the future.

Margaret Rosenfeld, chief legal officer of Cube Exchange, a digital asset exchange set to launch in Australia, told Cointelegraph that she believes companies may begin selling tokens on crypto exchanges as part of programmatic sales following the XRP ruling. This method of selling would be based on the argument that blind bid/ask sales are not corporate actions.

Ripple has sold approximately $757.6 million worth of XRP on digital asset exchanges per program, through the use of trading algorithms. The sales were blind bid/ask transactions, which means that the buyer and seller do not know each other. The court concluded that because the programmatic buyers could not know if their purchase payments had gone to Ripple, they had not invested their money in Ripple at all, she said.

Rosenfeld cautioned that relying on a district court judge’s ruling that can be appealed by the SEC doesn’t mean such programmatic sales are a clear path. Additionally, the court also did not address airdrops or secondary sales, so those will also remain risky.

The XRP decision is a step in the right direction

All things considered, there are still several concerns that will likely delay the establishment of a clear regulatory framework for digital assets in the United States. Rosenfeld is aware of this, noting that Cube Exchange has no plans to launch in the US anytime soon.

We cannot rely on a district court judge’s order to offer our products and services in the United States.

However, she added that the decision gave hope to some digital asset companies that they could offer products and services in the United States sooner than expected.

This case helps our industry ask Congress that a digital asset framework is needed because it demonstrates a clear conflict between our executive and judicial branches of government over how digital assets should be treated, she said.

Alderoty also remains optimistic, saying he believes the move will eventually encourage U.S. financial institutions to start discussing how crypto and blockchain technology can solve customer problems. He said:

Ripples’ business continues to expand outside of the United States in markets with clear crypto regulations. In the United States, banks and financial institutions have been sidelined as they are reluctant to do business without a clear regulatory framework.

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