Some Coinbase news is here. The shares of crypto trading platform Coinbase Global increased by almost 20% on Thursday after a federal judge declared that a crypto coin did not fulfill the definition of security.
The decision was issued in a carefully watched lawsuit involving the Securities and Exchange Commission and Ripple Labs, the cryptocurrency startup behind the XRP token. The SEC has declared that XRP tokens are securities Ripple failed to register with the agency, notwithstanding Ripple’s claim that the tokens did not fulfill that requirement under the law.
The decision of the United States District Court for the Southern District of New York amounted to a split decision for both parties.
The judge ruled that coins supplied by Ripple to institutional customers under signed contracts met the securities test. However, the judge also stated that tokens traded to the general public on digital-asset exchanges using trading algorithms did not fulfill that standard. Importantly, the judge stated that the nature of the transaction, rather than the token, defined its legal validity.
For crypto investors and firms like Coinbase (COIN), this might imply that many secondary market tokens aren’t securities, drastically limiting the SEC’s ability to go after trading platforms.
“This is a crazy opinion that stands has the potential to fundamentally reshape all capital markets, not just crypto,” said Todd Phillips, a principal with Phillips Policy Consulting who has testified in front of Congress on crypto legislation. Phillips said the judge’s ruling, which was likely to be appealed, created a “giant loophole that you can drive a truck through in the securities laws.”
The SEC sued Coinbase and competitor Binance in June, arguing they permitted unregistered securities trading and should have registered with the agency.
Following the Coinbase news, the business did not immediately reply to a request for comment. In a tweet following the judgment, Chief Legal Officer Paul Grewal stated, “Most days, I love being a lawyer.” Today is one of them,” with no additional explanation.
Ripple CEO Brad Garlinghouse, in a tweet, appeared to claim victory, writing: “Thankful to everyone who helped us get to today’s decision — one that is for all crypto innovation in the US. More to come.”
In an email, an SEC representative stated that the agency was happy that the court determined that XRP was marketed by Ripple as an investment contract in some instances and that the court agreed with the agency on several other points. According to the spokeswoman, the agency will continue to analyze the judgment.
Executives in the cryptocurrency business applauded the decision.
“This fundamentally undercuts the SEC’s argument that it has the authority over these underlying assets and that regulatory clarity already exists,” said Sheila Warren, CEO of the Crypto Council for Innovation trade group, in a statement.
In a tweet, cryptocurrency business Gemini, which has also been sued by the SEC for a different product type, stated that it would explore putting XRP on its trading platform. Tyler Winklevoss, the co-founder, tweeted, “The Ripple ruling today confirms that the @SECGov and @GaryGensler are not the regulators of crypto.”
Following the verdict, Coinbase shares rose 20% to $103.25 late Thursday.
Prices for XRP had increased by almost 69% in the previous 24 hours, while prices for other so-called “altcoins” such as Solana and Cardano had increased by more than 15%.