The crypto industry needed a win. And it got one. A federal judge ruled Thursday that coins sold programmatically (typically on exchanges) or awarded as part of compensation packages were NOT unregistered securities. And that only coins sold directly to institutional investors constituted registered securities.
“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,” wrote Judge Analisa Torres in a landmark ruling.
“XRP, as a digital token, is not in and of itself a “contract, transaction[,] or scheme,” Torres also wrote.
Torres’ ruling is not an outright victory for Ripple. The fact that direct sales to institutional investors was ruled a registered security isn’t a huge surprise. When initial coin offerings (ICOs) first hit the scene, this was a major concern. There’s also an upcoming trial to settle some other issues.
But this is a watershed moment for crypto. A federal court acknowledged that crypto is a different type of asset. It can be a registered security depending on the circumstances. But it is not automatically an unregistered security. And it frequently isn’t.
By recognizing the Schrodinger’s Cat nature of crypto, the court system has told the SEC that it should rethink its approach to how it thinks about crypto.
There are all sorts of juicy gems in this ruling, including the footnotes! I’m still sorting through it and will write more about this next week. But one thing is clear…
The SEC’s approach to crypto isn’t working. Its logic is flawed. It isn’t protecting investors. It isn’t helping the industry. And it’s preventing the United States from becoming a leader in this new space.
There’s little evidence the SEC will rethink things. But Congress might. This court ruling is a clear signal to Congressional leaders that it’s time to step up and pass some common sense regulations.
The crypto markets rallied right after the ruling. Almost every coin was in the green on CoinMarketCap. As of this writing, Ripple is up 72% and is being re-listed on major exchanges.
PancakeSwap and Aave are up almost 6% as of this writing. And GMX is up almost 7%.
Investors have been searching for a catalyst that could trigger the next crypto bull market. If the crypto industry keeps beating the SEC in court — and that’s a big if — a bull market could be on the way.