Judge’s Disagreement Could Spell Trouble for Ripple’s XRP

• U.S. District Judge Jed Rakoff repudiates a significant aspect of Judge Analisa Torres’s ruling on the SEC lawsuit against Ripple Labs.
• This rejection could signal a seismic shift in the classification and regulation of cryptocurrencies, potentially affecting Ripple’s ongoing legal battle.

Federal Judge Jed Rakoff, presiding over the Securities and Exchange Commission’s (SEC) case against Terraform Labs, recently unleashed a shockwave through the cryptocurrency community. In an unforeseen twist, he repudiated a critical approach that was previously adopted in the SEC’s lawsuit against Ripple Labs.

Newsflash: Ripple Decision Already in (Big) Trouble

SDNY District Judge Jed Rakoff today allowed the SEC to go forward with its case against Terraform Labs and founder Do Kwon. In doing so, Judge Rakoff specifically rejected the distinction made in the Ripple case between public… pic.twitter.com/JZZ8vukfFt

— John Reed Stark (@JohnReedStark) July 31, 2023

Ripple Ruling Revisited

Judge Rakoff’s decision has cast a new light on the previously settled Ripple case, under the purview of U.S. District Judge Analisa Torres. In that lawsuit, a noteworthy differentiation was made on the nature of token sales. The tokens sold directly to institutional investors were classified as securities, while those sold through secondary market transactions to retail investors were not.

Rakoff, however, has dismissed this differentiation in the ongoing Terraform Labs case, thereby indirectly calling into question the Ripple ruling’s foundation. The judge emphasizes that the method of token sale – direct or secondary – should not determine whether the tokens are categorized as securities or not. Instead, he advocates for a more comprehensive approach, considering other characteristics of the asset in question.

Implications on the Market and Ripple

The immediate market reaction to this legal pivot has been stark. Shares of Coinbase (COIN) slid 3%, while Ripple’s own XRP also felt the tremors with a 2.9% dip.

Though Ripple’s case isn’t directly overturned, it faces potential repercussions. SEC Chair Gensler has hinted at plans to appeal the Ripple ruling. Now, with Rakoff’s alternate viewpoint on how cryptocurrencies should be classified, it could provide a stronger base for the SEC’s appeal for a more extensive regulatory reach.

It’s important to note that despite this development, the Ripple ruling may still stand, depending on how persuasive the court finds Rakoff’s interpretation.

This unfolding situation underscores the ever-evolving landscape of cryptocurrency regulation, and the tangible impact judicial rulings can have on the market. While this might just be the tip of the iceberg, one thing is certain: the ongoing dance between crypto firms and regulatory authorities is set to remain in the spotlight for the foreseeable future.

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