Ripple's US SEC Win Will Boost Confidence Of Crypto Firms Under Scanner, Experts Say
The crypto industry has been engaged in a battle with the SEC and its Democratic chair, Gary Gensler, who has described the market as a "Wild West" plagued by fraud.
Experts suggest that the recent legal victory of a cryptocurrency developer against the US Securities and Exchange Commission (SEC) will inspire Coinbase and other companies to resist the agency's jurisdiction over the industry. Ripple Labs Inc's successful ruling on Thursday, which determined that its sale of XRP tokens did not violate securities law, marks a significant setback for the SEC's decade-long enforcement actions against the cryptocurrency sector. Two anonymous sources familiar with the matter revealed that other crypto firms accused of operating illegal digital asset exchanges are exploring ways to leverage this ruling to their advantage.
The crypto industry has been engaged in a battle with the SEC and its Democratic chair, Gary Gensler, who has described the market as a "Wild West" plagued by fraud. The SEC has targeted crypto trading platforms, including leading US exchange Coinbase, asserting its oversight by cracking down on them. While crypto firms have long disputed the SEC's jurisdiction, until now, no court had supported their position. The recent ruling provides industry lawyers with ammunition to push back against the SEC's actions.
The sources indicated that firms are contemplating utilising the judge's ruling as part of their defense strategies. They anticipate that exchanges will find ways to incorporate the ruling into their legal arguments. In 2020, the SEC filed a lawsuit against Ripple, accusing the San Francisco-based company and its executives of conducting an unregistered securities offering worth $1.3 billion through the sale of XRP, which Ripple's founders created in 2012.
US District Judge Analisa Torres in New York ruled that XRP sales on public cryptocurrency exchanges did not constitute offers of securities because purchasers did not have a reasonable expectation of profit tied to Ripple's efforts, a crucial factor in determining the security status of XRP at the time. However, the judge also determined that Ripple's direct sales of XRP to investors should have been registered as securities, providing the SEC with a partial victory.
Crypto advocates perceive the decision as a turning point and view the judge's reasoning as a new defence approach for exchanges like Coinbase, Binance, and Bittrex that have been targeted by the SEC for allegedly trading securities. Legal experts suggest that the ruling strengthens Coinbase's and Binance's arguments regarding the non-securities classification of digital assets traded on their platforms.
Representatives from Coinbase and Bittrex did not respond immediately to requests for comment, while Binance and the SEC declined to provide a statement.
While the crypto community celebrated the ruling, some legal experts believe that the SEC will challenge it in the 2nd US Court of Appeals to prevent judges in other cases from ruling similarly regarding the non-securities status of other crypto assets traded on exchanges. These experts argue that the SEC will not let the opinion stand due to the high stakes involved, particularly in light of ongoing cases against Coinbase and other issuers. However, an appeal carries risks for the SEC.
If the 2nd Circuit, whose rulings are binding in federal courts in New York, Connecticut, and Vermont, adopts the logic presented in the Ripple ruling, a significant portion of the Coinbase case would be invalidated. Legal professionals caution that appealing and losing the case could restrict the SEC's jurisdiction over the crypto markets.
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