The price of the cryptocurrency XRP shot up on Thursday after a federal judge in New York issued a ruling that favored San Francisco-based Ripple in a closely watched lawsuit about when a digital token is a security.
By late afternoon, XRP was trading for around 82 cents, approximately 75% higher than the 47-cent level where it began the day. The decision by U.S. District Judge Analisa Torres also sparked a modest rally in the broader crypto markets, with major tokens like Bitcoin and Ethereum rising between 3% and 6%.
The ruling comes after the Securities and Exchange Commission sued Ripple and its top executives in late 2020, claiming that the company had sold millions of XRP tokens as unregistered securities. In response, the price of the token fell dramatically after exchanges like Coinbase delisted it from their platforms.
Ripple created 1 billion XRP around 2010 and still holds the bulk of it in reserve. But the company has long argued that the blockchain on which the XRP trades is decentralized—meaning that the company didn’t have sufficient control over XRP for the token to qualify as a security.
In her decision, Torres largely sided with Ripple. She found that while Ripple’s sale of XRP to hedge funds and other sophisticated investors was a securities offering, this wasn’t the case for the majority of its token sales.
Specifically, Torres found that when Ripple sold XRP on exchanges, the buyers—mostly small-time traders—didn’t have a sufficient relationship with Ripple to create an investment contract.
“Therefore, the vast majority of individuals who purchased XRP from digital asset exchanges did not invest their money in Ripple at all,” wrote Torres.
Meanwhile, shares of Coinbase jumped more than 24% on the day as investors appeared to take the Ripple ruling as a positive omen for the company in light of a lawsuit filed by the SEC last month that accuses it of selling unlicensed securities on its platform. The agency’s case against Coinbase does not not refer to XRP, but Torres’ reasoning on how securities law applies to tokens appears to strengthen the company’s defense.
Thursday’s ruling amounts to a major setback for the SEC, which is in the midst of a major enforcement campaign against the crypto industry, and whose chairman has taken the position that all cryptocurrencies except for Bitcoin are securities.
The agency has yet to respond to the ruling, or say if it will file an appeal.
This pricing data in this story has been updated throughout the day.
