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Ripple, XRP chart courtesy of StockCharts.Com annotations by Mish

Ripple is up 31 cents, a 66 percent rise after trading up as much as 95 percent.

Bitcoin and Ethereum rose a modest 2.5 percent and 5.7 percent respectively.

GOP Majority Whip Tom Emmer Chimes In

The Ripple case is a monumental development in establishing that a token is separate and distinct from an investment contract it may or may not be part of. Now, let’s make it law. 👇 pic.twitter.com/FZtO1BzfWX

— Tom Emmer (@GOPMajorityWhip) July 13, 2023

Blow to the SEC

The Wall Street Journal reports Ripple Ruling Deals a Blow to SEC’s Effort to Regulate Crypto

U.S. District Judge Analisa Torres agreed with Ripple Labs’ argument that roughly half of its sales of XRP didn’t violate investor-protection laws. Ripple has argued that XRP, a token developed to facilitate cross-border payments, isn’t a security. The decision Thursday could buttress claims made by major cryptocurrency exchanges that are fighting similar SEC allegations over token trading.

“If other courts follow this reasoning, that is a major problem for the SEC,” said Marc Fagel, a former director of the SEC’s San Francisco office.

Torres also ruled partly for the SEC, finding that the other half of Ripple’s sales, or $728 million, did constitute an illegal sale of securities. The judge issued her decisions within an order that addressed Ripple’s and the SEC’s requests for summary judgment, a standard process that parties use to resolve a lawsuit before it goes to trial.  

The SEC targeted sales that Ripple made directly to institutional investors and to others via digital-asset exchanges. Institutional investors that bought XRP knew the seller was Ripple. Those investors could infer that Ripple would boost the value of XRP and they relied on the company to make their tokens appreciate, Torres wrote. That made the transaction a securities offering, she concluded.

Ripple may face financial penalties over those sales, Fagel said.

But people who bought XRP on digital-asset exchanges didn’t know they were buying from Ripple since the seller isn’t disclosed, Torres wrote. That was enough for Torres to conclude the investors didn’t depend on Ripple’s efforts to drive the value of XRP—and therefore the sales weren’t securities offerings. She also dismissed the SEC’s claims related to $600 million in XRP that Garlinghouse and Larsen sold on exchanges.

“Whereas the institutional buyers reasonably expected that Ripple would use the capital it received from its sales to improve the XRP ecosystem and thereby increase the price of XRP,” the investors who used exchanges “could not reasonably expect the same,” she wrote.

Part of the case is headed for trial. I suspect Ripple will get off with a fine, possibly outside of court.

The way forward for Ripple is clear. Stick to exchanges. The same logically applies to similar crypto models.

This is a well-deserved blow to the SEC and a victory for common sense, a commodity that is in fact, not very common.

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