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(Kitco News) - The crypto market is trending higher following breaking news that the United States district court in southern New York has granted a summary judgment in the Ripple Labs case, allowing that the XRP token is not a security.
The case, which was initially brought forth by the Securities and Exchange Commission (SEC) in 2020, has been one of the most watched and talked about topics in blockchain history as its outcome will have significant ramifications for the broader cryptocurrency ecosystem.
The SEC lawsuit sought to force Ripple to stop offering its XRP token under the premise that XRP was security and, thus, required additional regulation.
In her ruling, Judge Analisa Torres partially sided with Ripple Labs, while granting a portion of the SEC’s motion pertaining to $728 million in institutional sales. Originally, the SEC said Ripple’s institutional sales totaled $1.4 billion.
“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,” the ruling states.
After providing a review of the court's assessment of XRP in regards to the three-pronged Howey test, the court ruled that “Based on the totality of circumstances, the Court finds that reasonable investors, situated in the position of the Institutional Buyers, would have purchased XRP with the expectation that they would derive profits from Ripple’s efforts.”
The ruling went on to say that 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.”
When it comes to the XRP token, the court ruled it is not in and of itself a “contract, transaction or scheme” that embodies the Howey requirements of an investment contract. “Rather, the Court examines the totality of circumstances surrounding Defendants’ different transactions and schemes involving the sale and distribution of XRP,” the filing added.
The court also ruled against Ripple’s “essential ingredient” defense, in which the company argued that a physical contract must exist in order to be considered an investment contract.
“In each instance where Defendants offered or sold XRP as an investment contract, a contract existed,” the summary judgment said.
“For the foregoing reasons, the SEC’s motion for summary judgment is GRANTED as to the Institutional Sales, and otherwise DENIED. Defendants’ motion for summary judgment is GRANTED as to the Programmatic Sales, the Other Distributions, and Larsen’s and Garlinghouse’s sales, and DENIED as to the Institutional Sales.”
The portions of the case where summary judgment was denied will now head to trial, and the judge will set a trial date in a separate order.
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Chris Martin, Head of Research at Amberdata, said this judgment is “a huge step forward for the industry.”
“First, by judging that XRP is not a security we're starting to get clarity on what constitutes a security and what constitutes a commodity – the SEC will have to revise their tactics on several of their ongoing cases and I expect that this judgment will implicate several other tokens as non-securities,” Martin said. “I'm sure the CFTC is also taking a close look at this as it gives them a more clear jurisdiction over crypto currencies.”
“Second, the judgement that institutional sales of XRP by Ripple constitute securities also has massive implications for the industry with several ICO's now likely in the spotlight,” he added. “For exchanges caught in ongoing SEC cases, it's not clear how this judgement will affect them – they've only been involved in secondary sales for the most part. But as we can see with prices today, the market is very bullish on the judgments.”
Following the news of the partial victory for Ripple, the price of XRP spiked 40%, surging from $0.47 to a high of $0.66 with bulls now looking to extend the gains.
XRP/USD Chart by TradingView
