Judge rules XRP is not a security in SEC’s case against Ripple

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In a landmark decision, a federal judge has ruled that XRP, the cryptocurrency used by Ripple, is not a security and therefore not subject to the securities laws of the United States. This is a major victory for Ripple and its supporters, who have been fighting a legal battle with the Securities and Exchange Commission (SEC) since December 2020.

What is XRP and why does it matter?

XRP is a digital asset that was created by Ripple in 2012 as a way to facilitate fast and cheap cross-border payments. Unlike Bitcoin, which relies on a decentralized network of miners to validate transactions, XRP uses a network of trusted validators, some of which are run by Ripple itself. XRP also has a fixed supply of 100 billion units, of which Ripple owns about 55 billion.

XRP is one of the most popular cryptocurrencies in the world, with a market capitalization of over $40 billion as of July 2023. It is used by hundreds of financial institutions, including banks, payment providers, and remittance services, to move money across borders in seconds and at a fraction of the cost of traditional methods. XRP also has a loyal and passionate community of supporters, who believe that it has the potential to revolutionize the global financial system.

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What is the SEC’s case against Ripple?

In December 2020, the SEC filed a lawsuit against Ripple and its two co-founders, Brad Garlinghouse and Chris Larsen, alleging that they had raised over $1.3 billion through an unregistered and ongoing sale of XRP, which the SEC claimed was a security. The SEC argued that XRP was not a currency or a commodity, but an investment contract that gave buyers an expectation of profits from Ripple’s efforts. The SEC also accused Ripple and its executives of making false and misleading statements about XRP and its utility.

The lawsuit sent shockwaves through the crypto industry and caused many exchanges, platforms, and funds to delist or suspend XRP trading. The price of XRP plummeted by over 60% in the aftermath of the lawsuit, wiping out billions of dollars in market value. Ripple and its co-founders denied the SEC’s allegations and vowed to fight them in court. They argued that XRP was not a security, but a decentralized digital asset that had been recognized as such by other regulators around the world. They also claimed that the SEC’s lawsuit was an attack on the entire crypto industry and innovation in the US.

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What is the judge’s ruling and what does it mean?

After months of legal proceedings, motions, and discovery disputes, the case finally reached a critical juncture on July 13th, 2023, when Judge Analisa Torres of the US District Court for the Southern District of New York issued her ruling on the motion for summary judgment filed by both parties. In a 56-page opinion, Judge Torres sided with Ripple and granted its motion for summary judgment, while denying the SEC’s motion for summary judgment.

Judge Torres concluded that XRP was not a security under the Howey test, which is the legal framework used to determine whether an asset is an investment contract. She found that XRP did not meet any of the four prongs of the Howey test: there was no common enterprise between Ripple and XRP buyers; there was no expectation of profits from Ripple’s efforts; there was no reliance on Ripple’s managerial or entrepreneurial skills; and there was no correlation between Ripple’s success and XRP’s price.

Judge Torres also noted that XRP had a clear utility as a medium of exchange and a means of payment, independent of Ripple’s activities. She cited several examples of how XRP was used by various entities for legitimate purposes, such as remittances, micropayments, e-commerce, and gaming. She also recognized that XRP had a robust and decentralized network of validators, which ensured its security and integrity without Ripple’s involvement.

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Judge Torres’ ruling effectively ends the SEC’s case against Ripple and clears XRP from any securities law violations. It also sets a precedent for other cryptocurrencies that may face similar challenges from regulators in the future. It is expected that Judge Torres’ ruling will have a positive impact on the crypto industry as a whole, as it provides more clarity and certainty for investors, developers, and innovators.

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