XRP court ruling marks milestone, but new crypto law could take years: An analysis

In recent years, the cryptocurrency market has been grappling with regulatory uncertainties, and the recent court ruling on XRP has further highlighted the need for clarity in crypto legislation.

The cryptocurrency industry has been celebrating a recent court ruling that declared that Ripple’s XRP token is not a security when sold on digital asset exchanges. The ruling, issued by US District Judge Analisa Torres on July 13, 2023, has been hailed as a landmark victory for Ripple and the crypto ecosystem, offering hope for clarity and certainty in the regulatory landscape. However, while the ruling is undoubtedly a positive development, it does not necessarily mean that the legal and regulatory challenges for crypto are over. In fact, it may take years before a comprehensive and coherent crypto law is enacted in the US.

The ruling in a nutshell

The ruling was the result of a three-year legal battle between Ripple Labs, the developer of the Ripple blockchain and the XRP token, and the Securities and Exchange Commission (SEC), the US federal agency responsible for enforcing securities laws. The SEC sued Ripple in December 2020, alleging that it had raised over $1.3 billion through an unregistered and ongoing offering of securities in the form of XRP tokens. The SEC claimed that XRP met the criteria of an “investment contract” and therefore a “security” under the US securities laws, based on the Supreme Court’s Howey test.

Ripple, on the other hand, argued that XRP was not a security, but a digital asset that served as a medium of exchange and a bridge currency for cross-border payments. Ripple contended that XRP had utility and functionality independent of Ripple’s efforts, and that investors who bought XRP did not enter into any contractual relationship with Ripple or receive any rights or benefits from Ripple. Ripple also claimed that XRP was more akin to a commodity or a currency than a security, and that it should be regulated by the Commodity Futures Trading Commission (CFTC), the US federal agency responsible for overseeing the derivatives markets.

The court sided with Ripple on most of its arguments, finding that XRP was not a security when sold on digital asset exchanges. The court reasoned that secondary market buyers were never promised anything by Ripple itself, and that they could use XRP for various purposes without depending on Ripple’s actions or performance. The court also noted that XRP had intrinsic value and utility as a means of payment and transfer.

However, the court did not completely exonerate Ripple from its alleged securities violations. The court ruled that XRP was a security when sold by Ripple to institutional investors in private placements between 2013 and 2020.

The implications for crypto

The ruling has been widely praised by crypto enthusiasts and advocates, who see it as a sign of recognition and legitimacy for crypto assets by the US judicial system. The ruling has also boosted the price and popularity of XRP, which surged by 25% after the ruling, and regained its spot as one of the top five cryptocurrencies by market capitalization6. Moreover, the ruling has encouraged some crypto exchanges, such as Coinbase, to resume trading XRP after they had suspended it following the SEC’s lawsuit.

However, the ruling does not necessarily mean that crypto assets are safe from regulatory scrutiny or intervention in the US. The ruling is specific to XRP and its particular facts and circumstances, and does not create a binding precedent for other crypto assets or cases. The SEC may still pursue enforcement actions against other crypto projects or platforms that it deems to be offering securities without complying with securities laws. The SEC may also appeal the ruling or seek legislative changes to expand its authority over crypto assets.

While the XRP court ruling marks a milestone for crypto regulation in the US, it does not mark the end of the road. It may take years before a new crypto law is adopted in the US, and until then, crypto stakeholders will have to navigate the complex and uncertain regulatory environment with caution and vigilance.