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US Crypto-Token Regulation in Disarray After Ripple Labs’ Ruling – P. J. Byrne

In a recent court ruling, Ripple, the company behind the digital asset XRP, has achieved a victory in one of the two categories of sales it was facing. The court found in favor of Ripple in the programmatic sales category, stating that the third prong of the Howey test, which determines whether a transaction involves an investment contract, was not met.

The court argued that the “expectation of profits” prong was not fulfilled in Ripple’s programmatic sales. It explained that these sales involved blind bid/ask transactions, where buyers were unaware of whether their payments went to Ripple or any other seller of XRP. Therefore, the court concluded that programmatic buyers were similar to secondary market purchasers who were unaware of who they were paying.

This ruling is significant for Ripple as it narrows down the allegations against the company. However, Ripple is still facing scrutiny in another category of sales, the agreement sales. It remains to be seen how the court will rule on this matter.

Programmatic sales are a key aspect of Ripple’s business model, allowing XRP to be bought and sold on various digital asset exchanges. Ripple has argued that XRP is not classified as a security and should therefore not be subject to the securities laws enforced by the Securities and Exchange Commission (SEC). The court’s ruling in favor of Ripple in the programmatic sales category is a positive development for the company’s defense against the SEC’s allegations.

The Howey test, which was referenced in the court’s ruling, was established by the Supreme Court to determine whether a transaction qualifies as an investment contract. This test consists of four prongs, one of which is the “expectation of profits.” If a transaction meets all four prongs of the test, it is deemed to involve an investment contract and falls under the jurisdiction of securities laws.

Ripple has been embroiled in a legal battle with the SEC since December 2020, when the agency filed a lawsuit against the company for conducting unregistered securities offerings. The SEC alleges that Ripple raised $1.3 billion through the sale of XRP, which it considers to be an unregistered security.

The outcome of this legal battle will have significant implications for the cryptocurrency industry as a whole. If the court ultimately rules in favor of the SEC, it could set a precedent for how other digital assets are classified and regulated. On the other hand, if Ripple successfully defends its case, it would provide clarity and regulatory certainty for other companies operating in the digital asset space.

In conclusion, Ripple has secured a victory in the programmatic sales category of its legal battle against the SEC. The court ruled that the expectation of profits prong of the Howey test was not met in these sales. This ruling is a positive development for Ripple’s defense against the SEC’s allegations. However, the company still faces scrutiny in the agreement sales category, and the final outcome of the case remains unknown. The court’s decision will have far-reaching implications for the cryptocurrency industry, shaping how digital assets are classified and regulated in the future.

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