In the world of cryptocurrency, a big event happened on July 13th. U.S. District Judge Analisa Torres ruled on a court case between the U.S. Securities and Exchange Commission (SEC) and a company called Ripple Labs. Let's break down what happened and why it's important for the crypto world.
Ripple and XRP: What's the Deal?
Ripple Labs, a cryptocurrency exchange, created a digital token called XRP. The SEC claimed that XRP was a security, requiring regulation, and that Ripple should have officially registered it as such before selling it. The court case has been going on since December of 2020.
In a big win for Ripple, the court decided that XRP cannot be classified as a security. "This is a win for Ripple, it's also a win for the entire crypto industry," said Brad Garlinghouse, the CEO of Ripple.
This decision, despite not pleasing both parties completely, is a monumental victory for digital assets. It also highlights the nuanced approach that U.S. Courts take when evaluating the validity of investment contracts against the specifics of each transaction type.
The Details of the Case: Who Won, Who Lost?
Even though XRP isn't a security, the court did find that Ripple sold some XRP institutionally in unregistered offerings. Institutional sales are when big investors or institutions buy XRP directly from Ripple.
On the other hand, Ripple's programmatic distributions and payments to people who help develop XRP were not considered unregistered offerings or sales. The legality of people selling their XRP to others, known as secondary market sales, is still uncertain as it wasn't directly addressed in this case.
“How can a thing be a security in one transaction, but not in another? UK legal doctrine evolving to answer this (the "Third Thing" concept). In [the] U.S., it has not; hopefully Congress will get involved and clear things up soon.”
But the SEC didn't quite get what it wanted. Even though it can still take Ripple to court over unregistered institutional sales, many of Ripple's ways of distributing tokens were found to be legal. The SEC might appeal the court's ruling to prevent it from being used as a basis for future legal arguments.
And Ripple Labs and its key personnel aren't entirely off the hook yet: they still have to deal with the SEC in court, unless they can successfully appeal the decision that their institutional sales were unregistered offerings.
The Ripple Effect: Why is this Important for Crypto?
The court decision has made a big splash in the crypto world. XRP's value increased significantly, and other cryptocurrencies that the SEC has been keeping a close eye on also saw increases in their values. Coinbase, a platform where people can buy and sell cryptocurrencies, which is also being investigated by the SEC, saw its value go up by almost 25% on the day the judgment was announced.
This judgment is important because it sets a precedent, which is a decision that can be used to influence future cases. This could help other cryptocurrency exchanges like Coinbase and Binance in their battles against the SEC.
What does it mean for Crypto Nonprofit Fundraising?
The U.S. has the largest number of crypto holders — over 46M people or 13% of the population — who donated $500M in 2021 with an average give of $10,500, and will continue to give as the crypto market strengthens. The decision has energized the crypto community in the U.S. and sent the price of ETH up to $2,000 for the first time since May, and Bitcoin to over $31,000, nearing its 13th-month high.
The decision could also define new ways to raise money in the crypto world and help establish clearer rules. It outlines a way to think carefully about how digital tokens are sold and distributed to stay within the law. We'll have to wait and see what happens next in the Ripple case, but this decision has certainly made a big impact on opportunities in crypto fundraising.
Here at Givepact, we are committed to helping you understand these complex issues. We'll keep you updated on the Ripple case and other big news in the industry!