The cryptocurrency industry won an early victory in its lawsuit with US regulators when a federal judge on Thursday ruled that selling a digital asset called XRP on public exchanges complied with securities laws.
For years, the Securities and Exchange Commission has argued that digital assets are securities, such as stocks and bonds traded on Wall Street, and should be subject to the same strict rules. Last month, the SEC sued two of the largest crypto exchanges, Coinbase and Binance, accusing them of marketing unregistered securities to the public.
But Thursday’s ruling in a case involving the crypto company Ripple may complicate that argument and provide fodder for the crypto industry to defend itself in court.
The SEC sued Ripple in December 2020, accusing the company of violating securities laws in one of the first major legal battles involving cryptocurrencies. In the 34-page ruling on Thursday, U.S. District Court Judge Analisa Torres for the Southern District of New York said Ripple did not break the law when the cryptocurrency it created, XRP, was sold on public exchanges.
The ruling was not a complete victory for the industry. Judge Torres also found that Ripple had violated securities laws when it sold XRP to institutional investors, such as sophisticated hedge funds.
An SEC spokesperson said in a statement that the agency was reviewing the decision. “We are pleased that the court found that Ripple offered and sold XRP tokens as investment contracts under certain circumstances,” the statement read.
In an interview, Stuart Alderoty, Ripple’s Chief Legal Officer, called the ruling “a win for the wider crypto industry”.
“Today’s decision provides necessary checks and balances in the SEC’s campaign of regulation through enforcement,” said Mr. Alderoty.
Ripple was founded in 2012 by a group of developers, including Chris Larsen, who has long been counted among the wealthiest crypto executives in the world. The company’s mission was to make international payments easier using the XRP token.
Over the years, the token became one of the most valuable cryptocurrencies on the market, and Ripple developed a loyal following online. But the SEC’s lawsuit cast a shadow over the company and some exchanges stopped offering XRP for sale.
A resolution to the case was widely anticipated in the crypto industry, with prominent executives celebrating Judge Torres’ ruling as a major victory.
“Most days I love being a lawyer,” said Paul Grewal, head of legal affairs at Coinbase, wrote on Twitter. “Today is one of them.”
Tyler Winklevoss, one of the founders of the Gemini exchange, tweeted“Adios Gary,” a reference to Gary Gensler, the SEC chairman who has spearheaded the government’s crackdown on the crypto industry.
But the Ripple ruling doesn’t mean the crypto industry will win its other cases. In the lawsuits against Binance and Coinbase, the SEC argued that a large number of cryptocurrencies are securities. Judges in those cases will have to make separate decisions on whether the sale of those digital assets violates the law.