In December 2020, The US Securities and Exchange Commission filed a lawsuit against Ripple Labs the creator of XRP. The case was based on the premise that Ripple Labs sold XRP as an unregistered security. On July 13, 2023, Judge Analisa Torres, issued a ruling that says XRP is not a security, which is an apparent win not just for Ripple Labs but for the whole crypto community as well.
The judgment was enthusiastically welcome by crypto investors and propelled the price of the XRP token. Even Coinbase announced that it will be relisting the token.
There is a Caveat
Nobody can deny that this development is a win for Ripple and its token XRP, but there is a caveat to the court decision. The court has several conclusions and it was not a 100% win for Ripple Labs.
On page 22 of the decision it says: “Therefore, having considered the economic reality and totality of circumstances surrounding the Institutional Sales, the Court concludes that Ripple’s Institutional Sales of XRP constituted the unregistered offer and sale of investment contracts in violation of Section 5 of the Securities Act” This says that direct sales of XRP to institutions violated securities law.
On page 17 of the decision it says: “Therefore, having considered the economic reality and totality of circumstances, the Court concludes that Ripple’s Programmatic Sales of XRP did not constitute the offer and sale of investment contracts.” Programmatic sales are automated and regulated transactions that occur on public exchanges.
To sum it up, it was a partial win for Ripple Labs since the court ruled out that XRP is not a security when sold on public exchanges or through programmatic sales. However, Judge Torres also ruled that XRP is a security when it is sold directly by Ripple to sophisticated buyers, such as hedge funds or banks. Yes, there is a caveat but this means XRP can now be sold in exchanges without being labeled as securities.
How Does the XRP Court Ruling Affect Other Altcoins?
The SEC has been waging war against Altcoins, which the agency considers as securities, and crypto exchanges that list them. Binance.US and Coinbase have recently been sued for doing so. Other exchanges like Robinhood have started to delist altcoins that are on the SEC’s crosshair. Nevertheless, the court’s decision is a breath of fresh air for the altcoin market. If they are walking the same path as XRP and are being offered on exchanges, then it can be argued that they are not being sold as securities. Altcoins that have been tagged as securities like Cardano (ADA), Solana, SOL (SOL), and Polygon (MATIC) are showing strong upside price movements due to the decision.
XRP took a beating in the bear market and it was made worse by the court case. But just like in the movies, the protagonist will usually take some hits before claiming victory. And this victory might be one of the necessary components to start the bull market.
XRP’s victory candle:
Brief History of XRP and the SEC Lawsuit
- In 2011 David Schwartz, Jed McCaleb, and Arthur Britto who had an interest in Bitcoin sought to create a more sustainable network that can send value. The three developers were concerned with Bitcoin’s energy consumption and scalability.
- In June 2012, the three developers completed the code for the XRP ledger.
- NewCoin was founded in September 2012 (which was renamed to OpenCoin).
- 2013 – OpenCoin was renamed Ripple Labs
- December 2020 – The SEC sued Ripple Labs and two executives for offering so-called unregistered securities
- March 2023 – The Supreme Court denied Ripple Labs’ petition to hear its argument that the SEC failed to provide the former with a fair notice about XRP being a security.
- June 2023 – The Hinman documents were released. The documents contain Former SEC Director William Hinman’s view on crypto. This was considered to be a win for Ripple since Hinman suggested that Bitcoin and Ethereum were not securities.
- June 13, 2023. Judge Analisa Torres issued a summary judgment that XRP is not a security when sold via exchanges or programmatic sales.
