A big legal win may save the U.S. crypto industry

A “reset button” has been hit for U.S. crypto companies thanks to the biggest legal victory for the industry so far, Stu Alderoty, chief legal officer of Ripple, said Thursday after his company’s win.

Ripple — a blockchain-powered payment settlement system — was sued by the U.S. Securities and Exchange Commission in 2020 over its digital token, XRP. The lawsuit centered on the fundamental question of whether a digital asset was a security, which would fall under the jurisdiction of Gary Gensler’s SEC.

A federal judge largely ruled against the agency and said that XRP did not meet the standard of an investment contract, even when sold on an exchange, and was therefore not a security.

“This is certainly a landmark ruling,” Alderoty said. “Hopefully this puts the SEC back in its box.”

The court decision sent the value of everything crypto and crypto-adjacent soaring, whether it was Bitcoin or stocks of publicly-traded companies, as fear of what Alderoty called the SEC’s “sledgehammer” vanished.

It’s been a tough week for President Joe Biden’s most well-known corporate watchdogs. Federal Trade Commission Chair Lina Khan lost another big fight Tuesday when a federal judge ruled that Microsoft’s acquisition of Activision could move forward.

For the SEC, which has cracked down on the crypto industry under Gensler’s leadership, the ruling could be seen as an outright rejection of his agency’s policy toward the sector.

“Our government and the administrative state have become activists,” tweeted Virtu founder Doug Cifu. “Not what government regulators should do or be.”

The ruling vindicates the companies — namely Coinbase — that chose to fight in the U.S. instead of decamping to friendlier locales in the Gulf or Southeast Asia.

Everyone from royal families to prime ministers have campaigned for disillusioned crypto firms to jump ship, but the concentration of capital and talent in the U.S. made it hard for many to leave.

While the SEC may appeal, the ruling should provide the clarity needed for those hesitant about the industry’s American future.

Beyond the possibility of an SEC appeal, there are still plenty of Washington eyes on the crypto world. The U.S. Commodity Futures Trading Commission, once seen as a possible savior, will probably try to take on more oversight in light of the recent ruling — something that might end the “honeymoon” with the industry, as Coindesk wrote last fall.

There are also various proposals in Congress to set up guardrails, though little agreement on what they should be.

It’s doubtful the ruling has changed Binance founder Changpeng Zhao’s opinions of the U.S. and its regulators (the exchange is being sued by the CFTC and the SEC, and under investigation by the Department of Justice). But the Dubai-based billionaire celebrated the decision while also pointing out that his belief in Ripple’s token never wavered.

He retweeted a post stating that Binance never stopped trading Ripple’s token throughout the lawsuit as some other exchanges did. “This is what we call having big balls,” the tweet read.

• Democratic Congressman Ritchie Torres penned a letter to the SEC’s Inspector General to investigate the agency’s crypto oversight.