What happened
Most cryptocurrencies and crypto-related stocks zoomed higher today after crypto proponents claimed victory in a closely watched lawsuit between the U.S. Securities and Exchange Commission (SEC) and Ripple Labs, the creator of XRP (XRP -2.40%).
Shares of the large U.S.-based crypto exchange Coinbase (COIN 5.68%) traded nearly 18% higher as of 2:52 p.m. ET today. Meanwhile, since late afternoon yesterday, the prices of cryptocurrencies Cardano (ADA -3.05%) and Solana (SOL -5.27%) were up roughly 22% and 16.5%, respectively.
So what
The big news for the crypto industry is that today a U.S. district court judge made a big ruling in the lawsuit between the SEC and Ripple, which is expected to have major ramifications for the entire crypto industry.
Image source: Getty Images.
In late 2020, the SEC sued Ripple for raising $1.3 billion through "an unregistered, ongoing digital asset securities offering." The lawsuit sparked a big debate over whether or not cryptocurrencies are securities or currencies. The SEC believes many are securities and therefore must be registered with the SEC and fall under the SEC's regulatory regime, which many crypto stakeholders believe is unclear and hard to follow.
Crypto proponents assert that cryptocurrencies are currencies and therefore must be regulated by the Commodity Futures Trading Commission, so the lawsuit between the SEC and Ripple is potentially precedent-setting.
In the ruling, U.S. District Court Judge Analisa Torres concluded that XRP tokens did not classify as investment contracts when sold on exchanges and algorithms, as the SEC claims, and therefore did not violate securities laws. However, Torres did say that the sale of tokens to institutional investors did breach U.S. securities laws.
Despite a seemingly mixed decision, crypto advocates are hailing it as a win, largely because if cryptocurrencies are not deemed as securities when sold on exchanges or algorithms, then exchanges are free to sell them without worrying about violating the law. The price of XRP had rocketed more than 63% as of this writing.
This is clearly good news for Coinbase because the SEC recently sued the exchange for operating an unregistered exchange, broker, and clearing agency, and for selling digital assets such as Cardano and Solana that the SEC believes are securities.
"The judgments today are a huge step forward for the industry," Amberdata's head of research Chris Martin told CNBC. "By judging that XRP is not a security we're starting to get clarity on what constitutes a security and what constitutes a commodity -- the SEC will have to revise their tactics on several of their ongoing cases and I expect that this judgment will implicate several other tokens as non-securities."
Now what
The XRP ruling today is clearly good news for the sector because it could help Coinbase and many other cryptocurrencies escape from the SEC's oversight and therefore lawsuits. Furthermore, it creates more regulatory clarity, which many believe is key for the advancement and normalization of cryptocurrencies.
While I'm not the biggest fan of Coinbase stock, the news today certainly bodes well for the company.
It also bodes well for Cardano and Solana, which the SEC has tried to define as securities. Both of these cryptocurrencies do have compelling technical capabilities on their blockchain networks and therefore are worth a look, although in the past they have largely traded with the broader sector.
