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XRP soars 80% in SEC ruling: Is the optimism misplaced?


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Crypto influencers argue yesterday's ruling between the SEC and Ripple is a massive win for crypto in the US

A ruling in the ongoing court case between Ripple and the SEC is being touted as a win for cryptocurrency investors in the US today.

The Judge presiding over the case, Analisa Torres, ruled that a digital asset like XRP "is not necessarily a security".

"XRP, as a digital token, is not in and of itself a 'contract, transaction, or scheme' that embodies the Howey requirements of an investment contract" said Judge Torres on Thursday, US time.

Markets were excited by the news, with XRP rallying as much as 80% from US$0.47 to US$0.86 in the hours following the news, before retracing to US$0.76 at the time of writing.

Why it's important

The SEC has attempted to argue in multiple lawsuits that digital assets sold on cryptocurrency exchanges constitute the illegal buying and selling of securities.

Today's ruling is being interpreted by some experts that the sale of cryptocurrencies on secondary markets, like exchanges, does not in fact constitute the buying and selling of securities.

The US House Majority Whip, Tom Emmer, weighs in on the ruling

If securities laws were applied to cryptocurrency trading, most crypto exchanges crypto in the US would be forced to shut down, as most do not hold the required licenses.

A number of US exchanges have already removed several cryptocurrencies named by the SEC for fear of them being ruled as securities.

Today's ruling could reverse this trend and restore faith to markets, with at least two US exchanges, Coinbase and Kraken already relisting XRP for trading at the time of publishing.

Ripple may have sold XRP illegally

While the ruling is considered a win for cryptocurrency exchanges and retail investors, Ripple received some bad news.

The judge deemed that the direct sale of XRP by Ripple to other institutions for the purpose of fundraising was in fact a violation of securities law.

Adam Cochran, a venture capitalist and DeFi expert, argues that the takeaway here is that selling tokens in a private sale – like an ICO – to raise funds is subject to securities laws.

However, once that token is sold on secondary markets (eg, exchanges) and bought by secondary buyers (eg, retail crypto investors) there is no direct investment by the investor into the asset issuer (in this case, Ripple).

As such, the asset does not meet all the requirements of the Howey test and does not qualify as a security.

This sentiment is shared by Cameron Winklevoss, founder of the Gemini exchange.

Such interpretations of the law suggest that while the sale of many existing tokens may retroactively be deemed illegal in some way, the ongoing buying, selling and possession of those tokens is not.

Shapeshift exchange founder, Eric Voores, appears to be equally optimistic, suggesting that ICOs can still operate, albeit in a certain way.

Interpretations are not the same as the law

It's important to take today's news with a grain of salt. Many of the commentators who claim this is a massive win for crypto stand to gain financially from a more relaxed regulatory environment.

Nor does the sudden price movement of XRP – or any crypto for that matter – provide validation of a hypothesis or legal view.

It remains to be seen whether the ruling has any actual impact on the multitude of other ongoing cases by the SEC against exchanges in the US, such as those against Binance and Coinbase.

Trying to get a handle on the markets? Cut through the noise with our overview of the best cryptos to buy right now, explore some strategies for how to trade crypto or see if there's a better platform for you with our guide to the best crypto exchanges.

Disclaimer: Cryptocurrencies are speculative, complex and involve significant risks – they are highly volatile and sensitive to secondary activity. Performance is unpredictable and past performance is no guarantee of future performance. Consider your own circumstances, and obtain your own advice, before relying on this information. You should also verify the nature of any product or service (including its legal status and relevant regulatory requirements) and consult the relevant Regulators' websites before making any decision. Finder, or the author, may have holdings in the cryptocurrencies discussed.

Disclosure: The author owns a range of cryptocurrencies at the time of writing.

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