‘Ripple’ verdict in US cheers Indian crypto entrepreneurs, market experts

A US federal court verdict favouring tech firm Ripple Labs Inc has cheered crypto enthusiasts worldwide, including in India, which is among the top 10 countries in crypto adoption, measured largely by quantifying cryptocurrency investments. India continues to see a rise in people buying cryptocurrencies notwithstanding a steep tax of 30% on crypto profits besides a 1% tax on every transaction.

The US verdict – a 34-page ruling – by Judge Analisa Torres of the US District Court for the Southern District of New York said that Ripple did not break the law when it sold its cryptocurrency, XRP, on public exchanges. “Having considered the economic reality and totality of circumstances, the court concludes that Ripple’s Programmatic Sales of XRP did not constitute the offer and sale of investment contracts,” the verdict said dismissing the contention of the market regulator, the Securities and Exchange Commission (SEC), which argued that digital assets must be subject to the strict regulations as securities are. Ripple’s XRP token rose massively in crypto exchanges the day after the verdict on July 14.

What the court said is that XRP cannot be treated like usual financial securities like bonds and stocks when it was offered to the public, although it went on to state that Ripple may have violated securities laws when it sold XRP to institutional investors. This verdict will put SEC in a bad spot over its lawsuits against crypto exchanges Coinbase and Binance over them selling what SEC states as “unregistered securities” to the public.

Summarising the verdict, Stuart Alderoty, chief legal officer at Ripple, tweeted on July 13, “A huge win today – as a matter of law – XRP is not a security. Also a matter of law – sales on exchanges are not securities. Sales by executives are not securities. Other XRP distributions – to developers, to charities, to employees are not securities.” He added, “The only thing the Court found constitutes an investment contract is past direct XRP sales to institutional clients. There will be further court proceedings only on these institutional sales per the Court’s order.”

Notes crypto influencer and author Sapna Singh, “Now that it is clear that XRP is not a security, it also means that other cryptocurrencies that the SEC has pursued on the same basis, including blue-chip cryptocurrencies like Matic, Solana, and Cardano, are also not securities. This victory is not only for XRP but for the entire crypto industry, which is why you can see tremendous bullish sentiments in the entire crypto market.” XRP’s rally was accompanied by a general bullish mood on crypto exchanges thanks to more clarity of regulations.

Bengaluru-based Sreejith Sreedharan, former banker, management development consultant and a crypto nut, feels that, in the first place, SEC’s sudden hardening of stand against Ripple and cryptos is both puzzling and smacked of double standards. “The Howey Test to determine whether a financial instrument is a security was always a bit tricky when it came to cryptos. Crypto doesn’t exactly check all the boxes, and the learned judge seems to have applied the same logic to rule that Ripple’s XRP isn’t security,” he avers.

Sreedharan argues that though this case has been ongoing for a while, SEC’s “wavering stand” over many years on cryptos has always caused a lot of confusion. “They took the current firm stand of ‘crypto is security’ only in 2020 when they filed the present case against Ripple in court.” Before that, he says, their interpretations and actions were contrary to their current stand, and while SEC is expected to challenge the judge’s ruling, the path ahead wouldn’t be easy for them. “Higher courts too would apply Howey’s Test criteria to confirm XRP’s security classification. Without other material facts against Ripple, SEC will continue to be on a sticky wicket,” he says.

He notes that whatever happens in America has a ‘ripple’ effect across the world. “Since cryptos are under great scrutiny globally, many more regulators will be cautious before they take summary hostile actions against cryptocurrencies. This should auger well for the industry. For cryptos, this is indeed a watershed moment. Cryptos have their place in the current financial system. Not recognising this is shortsightedness,” Sreedharan warns.

Talking to Open, Atul Khekade, author and crypto entrepreneur who in 2017 co-founded the XinFin Network (XDC), notes that utility-driven public networks like Ripple, Stellar (XLM) and XDC network solve trust issues in the global payments, remittances and trade finance market. Any institution can participate in the network as an owner. “Such asset class did not exist before and should be part of international bodies such as WTO or others,” he explains, emphasising that the mainland securities laws are outdated for this technology and this verdict greatly validates this fact. Earlier in a tweet, he had said, “Congratulations @Ripple and #XRPCommunity on this huge win. You deserve this for standing tall in crisis. It all gives massive confidence to the younger #XDCNetwork community building its way into the trade finance and tokenization market!”

For his part, Nischal Shetty, founder of crypto exchange WazirX, says that this ruling brings an initial level of clarity for crypto. “It’s also clear that crypto assets are not a black-and-white case of crypto being a utility or a security; there’s a lot of confusion around it even amongst regulators in the US. While crypto has its share of bad actors, the majority of the crypto participants are here to innovate and build the ecosystem. Rulings like these help build more confidence for all the builders and the investor ecosystem,” he notes.

Shetty feels that this entire legal battle also highlights the global need for swift regulatory clarity of crypto. He says, “Entrepreneurs are here to build innovative products and bringing regulatory clarity will help them avoid the emotionally and financially draining exercise of defending their attempt at innovation in lengthy court battles.” He sums up, “The excitement in the market post the XRP ruling also proves that the crypto market is ready for the right regulations to propel this space forward.”

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