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On Thursday, a New York district judge issued a long-awaited ruling on a court case between the Securities and Exchange Commission and the crypto firm Ripple. The dispute hinged on whether sales of Ripple’s proprietary cryptocurrency, XRP, constituted offering an unregistered security, and the ruling was complex, with a split decision finding merits for both sides.
As the dust settled, Crypto Twitter hailed the ruling as a win for the embattled industry. Judge Analisa Torres found that Ripple’s XRP sales to institutional investors, like hedge funds, were an investment contract, while its programmatic sales on open markets like exchanges were not. While the SEC will likely challenge the decision, and parts of the case still have to go to trial, the implications are vast. Many interpreted the ruling to mean that secondary sales of cryptocurrencies are not securities, which would undermine the SEC’s lawsuits against exchanges like Coinbase and Binance.
“There’s no way to look at the Ripple decision as anything but a win for the crypto industry,” said Christian Schultz, a former SEC division of enforcement assistant chief litigation counsel who’s now a partner at Arnold & Porter. “That could spell problems for the SEC in other pending litigation, particularly those that are focused primarily, if not exclusively, on secondary market activity.”
Schultz added that Torres’s decision on institutional sales supports the SEC’s position, but that the crypto industry would likely find creative ways to avoid that path for its initial distribution of tokens.
This view was widely shared by lawyers who provided comment to Fortune. “If upheld on appeal, this decision significantly narrows the SEC’s jurisdiction over the crypto market,” said Arthur Jakoby, co-chair of securities litigation and enforcement at the law firm Herrick.
Others highlighted the distinction Torres made that XRP itself is not a token, but its sale can be under certain facts and circumstances. Jeffrey Alberts, a partner at the law firm Pryor Cashman, said the question of whether cryptocurrency tokens were themselves securities had “has previously led to widespread confusion.”
Whether the ruling holds up during an appeal was another topic of discussion. Dr. Jiaying Jiang, a professor of law at the University of Florida, told Fortune that there is still room for argument around the decision on programmatic sales, adding that the specifics of XRP’s economic context may not apply to other cryptocurrencies, especially with the judge punting the larger question of secondary sales not directly from an issuer.
The SEC touted the judge’s ruling on institutional sales, responding in a statement that it was pleased with the court’s finding that “XRP tokens were offered and sold by Ripple as investment contracts in violation of securities laws in certain circumstances.”
Crypto Twitter’s victory lap
Amid the celebration, more level-headed members of Crypto Twitter provided caution on the decision, and particularly Torres’s seemingly radical argument that secondary sales did not constitute offering a security. In one tweet, now deleted, an attorney described the dilemma created by the case as “Shrodingers Shitcoin,” as altcoins sold to institutional investors like VC would require disclosure, while those sold to retail would not.
Wait, based on the Ripple decision, if you buy a stock on the secondary market is that no longer considered a security?
— Sean Tuffy (@SMTuffy) July 13, 2023
Justin Slaughter, policy director of the crypto VC firm Paradigm, said that the confusion created by the decision is the result of leaving digital asset regulation to the courts rather than Congress, arguing that the ruling would likely force otherwise hesitant lawmakers to the table.
It’s about to be a very intense and exciting 96 hours in Washington, maybe the most consequential few days in crypto policy history.
If there’s no movement towards bipartisan legislation now, there probably won’t be before the 2024 election.
Buckle up.
End pic.twitter.com/QXUKuJnOFR
— Justin Slaughter (@JBSDC) July 13, 2023
Others spent less time on the legal nuance of the case, instead focusing on the implications for SEC Chair Gary Gensler, who has become a boogeyman for the industry. With the ruling representing the first meaningful loss for the agency on the question of crypto securities, previous targets of the agency’s ire expressed glee.
The @SECGov and @GaryGensler claim that 80-year-old securities laws apply to crypto. A judge today said they do not. Adios Gary.
— Tyler Winklevoss (@tyler) July 13, 2023
Not to be left out of the one-liners, New York Democratic congressman and crypto advocate Ritchie Torres noted the shared surname of the judge.
Worth noting the judge’s last name in this first-of-its-kind case today out of the Southern District of New York.
Never met a Torres who was wrong on crypto.https://t.co/fwDTovLGFz
— Rep. Ritchie Torres (@RepRitchie) July 13, 2023
Hot takes aside, the ruling had immediate implications for the crypto industry, as exchanges from Coinbase to Kraken raced to re-list XRP. The token surged as high as 75%. For now, Crypto Twitter just seems ready for the weekend.
One of those days for crypto where a couple weeks/months happens in a couple hours. ????
— Keli Callaghan ????️ (@KeliCallaghan) July 13, 2023
