The cryptocurrency industry scored an early victory in its court battle with US regulators when a federal judge ruled Thursday that the sale on public exchanges of a digital asset called XRP complies with securities laws .
For years, the Securities and Exchange Commission has argued that digital assets constitute securities, like stocks and bonds traded on Wall Street, and should be subject to the same strict regulation. Last month, the SEC sued two of the largest crypto exchanges, Coinbase and Binance, accusing them of selling unregistered securities to the public.
But Thursday’s decision in a case involving crypto company Ripple could complicate that argument and provide fodder for the crypto industry to defend itself in court.
The SEC sued Ripple in December 2020, accusing the company of violating securities laws in one of the first major legal battles involving cryptocurrencies. In a 34-page ruling on Thursday, Judge Analisa Torres of the US District Court for the Southern District of New York said Ripple did not violate the law when the cryptocurrency it created, XRP, was sold on public exchanges.
The decision is not a complete victory for the industry. Judge Torres also found that Ripple violated securities law when it sold XRP to institutional investors, such as sophisticated hedge funds.
A spokeswoman for the SEC said in a statement that the agency is reviewing the decision. “We are pleased that the court found that XRP tokens were offered and sold by Ripple as investment contracts in violation of securities laws in certain circumstances,” the statement said.
In an interview, Stuart Alderoty, Ripple’s chief legal officer, called the decision “a win for the broader crypto industry.”
“Today’s decision puts appropriate checks and balances on the SEC’s campaign of regulation through enforcement,” Mr. Alderoty said.
Ripple was founded in 2012 by a group of developers including Chris Larsen, who has long been ranked among the richest crypto executives in the world. The company’s mission is to make international payments easier with the XRP token.
Over the years, the token has become one of the most valuable cryptocurrencies on the market, and Ripple has built a loyal online following. But the SEC lawsuit rattled the company, and some exchanges stopped listing XRP for sale.
A resolution in the case was widely anticipated in the crypto industry, and prominent executives celebrated Judge Torres’ decision as an important victory.
“Most days I want to be a lawyer,” Paul Grewal, the chief legal officer at Coinbase, wrote on Twitter. “Now is one of them.”
Tyler Winklevoss, one of the founders of the Gemini exchange, tweeted“Adios Gary,” a reference to Gary Gensler, the SEC chair who led the government’s crackdown on the crypto industry.
But Ripple’s decision doesn’t mean the crypto industry will win its other cases. In the lawsuits against Binance and Coinbase, the SEC argued that a broad list of cryptocurrencies constituted securities. Judges in those cases had to make separate determinations about whether the sale of those digital assets violated the law.