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.
As of midday, the price of XRP was trading around 80 cents following the decision by U.S. District Judge Angela Torres. This represents an increase of approximately 70% from the 47-cent level at which Ripple was trading prior to the ruling.
The ruling also sparked a modest rally in the broader crypto markets as major tokens like Bitcoin and Ethereum rose between 1% and 4%.
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 trade 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—did not 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 16% 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 Judge 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.
An earlier version of this story stated XRP's price had risen 30%. It has been updated to reflect more recent price changes and to include Coinbase share price information.
