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The only thing this ruling guarantees is continued uncertainty in the cryptocurrency markets – uncertainty only Congress can correct, says Preston Byrne.

Ripple Labs won a partial victory in court on Thursday as a federal judge ruled that some of its sales of the XRP token, which were challenged as securities violations by the Securities and Exchange Commission, did not fully meet the definition of a securities offering. 

The decision, which the SEC said it is still reviewing for possible appeal, does not fully exonerate Ripple or its lead executives from possible civil consequences. Judge Analisa Torres of the Southern District of New York ordered a trial by jury for Ripple CEO Brad Garlinghouse and Executive Chairman Chris Larsen over whether they are liable in illegal securities sales to institutional investors who bought hundreds of millions of dollars worth of XRP. 

But the crypto industry at large celebrated the partial win for Ripple, framing it as a development that showed cracks in the SEC’s armor. The agency has an undefeated track record in enforcement cases brought against crypto firms dating back to the initial coin offering bubble of 2017. 

“Looking forward to getting a refund on my Acela tickets now that I no longer need to come in and talk to the @SECGov. Lmfao,” Gemini co-founder Cameron Winklevoss tweeted in reaction to the ruling.

In a statement, an SEC spokesperson lauded parts of the judgment that found sales of XRP to be, “investment contracts in violation of the securities laws in certain circumstances,” and noted that the court rejected Ripple’s preferred definition of a security test for investment contracts.  

The full impact of what Thursday’s ruling means will continue to play out over months, as experts agree that appeals by both Ripple and the SEC appear likely. 

Split decision with possibly major implications

Torres ruled that Ripple’s “blind bid” sales, in which the company used an algorithm to sell XRP on trading platforms to bidders whose identity it didn’t know, was not a securities offering because buyers “could not have known if their payments of money went to Ripple, or any other seller of XRP.” 

The federal judge noted that these so-called programmatic sales represented less than one percent of global XRP transactions since 2017. Torres seemed to indicate that purchases of XRP in transactions where the buyer either didn’t know that Ripple was the seller, as in the programmatic sales, or on the secondary market would not qualify as de facto investments in the company, which would qualify as illicit securities sales.

“Therefore, the vast majority of individuals who purchased XRP from digital asset exchanges did not invest money in Ripple at all,” Torres wrote.

She contrasted this with Ripple’s sales to institutional buyers, who did know who they bought XRP from, and could reasonably expect to earn a profit from investing in a common enterprise, a hallmark of securities law. 

Still, it’s not clear whether Torres intended her ruling on blind bid sales to be a broad green light for secondary market sales. In her ruling, the judge wrote that the “totality of circumstances” around the transaction would determine whether a secondary sale is an illegal securities offering or not.

Ripple effects

Though ruling did not take the company and its lead executives off the hook for potential enforcement repercussions, legal experts saw the programmatic buyer part of Torres’s ruling as a win for both Ripple and the broader crypto industry. 

“The logical conclusion is that secondary sales of XRP are not securities transactions,” said Stephen Palley, partner and co-chair of the digital commerce group at the law firm Brown Rudnick.

That could have major implications for the secondary market for digital assets, where most crypto transactions take place. It could also bolster industry arguments in other proceedings, like the SEC’s case against Coinbase over several of the digital assets the company listed for public trading.

“This is a major victory for the industry and a major loss for the SEC because in fact by holding that the programmatic sales are not investment contracts, she is holding that secondary market transactions in crypto assets are not securities,” said Gary DeWaal, senior counsel at law firm Katten. 

Teresa Goody Guillén, a partner at law firm BakerHostetler, agreed. 

“So far digital asset issuers have not battled in court this far and obtained a ruling that in some circumstances the transaction involving a digital asset is not a security and so I think you’ll see implications for this in the Coinbase and Binance cases,” she said. “The blind bid seemed to be a big part of her reasoning here that if the buyer and the seller don’t know who each other are then, in these circumstances, there wasn’t an investment contract.”  

Ruling as a ‘wake-up call’ for the SEC

But the order though is not binding and even judges within the same district court could disagree, Goody Guillén added. The judge’s ruling, too, can still be appealed to the Second Circuit Court of Appeals, which multiple experts predict will happen, possibly before a trial to determine whether Garlinghouse and Larsen might be liable in civil court for unlawful securities sales. 

“I suspect that both the SEC and Ripple are looking at their options there,” said Palley. “If I’m Ripple I’m looking at the ruling on institutional sales and thinking maybe I want to take that up too.” 

In a note analyzing the ruling, TD Cowen Managing Director Jaret Seiberg called the ruling a “wake-up call to the SEC that its legal authority may not be as clear as it believed.” 

But he also noted that “appeals courts often overrule trial court judges” and that experts at the investment bank “do not see it as a given that the appeals court will uphold the district court’s decision or reasoning.”

© 2023 The Block Crypto, Inc. All Rights Reserved. This article is provided for informational purposes only. It is not offered or intended to be used as legal, tax, investment, financial, or other advice.

Stablecoin issuer Circle is aiming to ramp up is messaging as the U.S. Congress considers new legislation for the sector. The company on Thursday posted a new 2-minute video, in which it argues that the country needs robust regulation if it wants a digital dollar or USD stablecoin to become the global reserve currency.

“We are working hard to engage and educate DC on the issues, as this likely goes from a HSFC bill into law that’s being considered by the entire House of Representatives coming out of the summer recess,” Circle CEO Jeremy Allaire told The Block.

“We are at a key moment in development of U.S. policy, with expected upcoming votes in Congress, and we are trying to help present a simple and compelling case to economic and policy leaders around the importance of getting stablecoin laws done in the U.S.,” he continued.

The firm’s message will be seen on various social and digital outlets, he added.  

© 2023 The Block Crypto, Inc. All Rights Reserved. This article is provided for informational purposes only. It is not offered or intended to be used as legal, tax, investment, financial, or other advice.

That includes customer recoveries, the bankruptcy crypto lender said Thursday.

The bankrupt crypto lender was given permission to convert its roughly $170 million altcoin stash to BTC and ETH.

The Art Blocks CEO isn’t selling a single one of his new NFTs. Instead, he’s giving them to individuals and communities that supported him and the platform’s genesis collection.

Binance is under scrutiny for its handling of a 2021 rug pull incident, which left victims with a loss of $15 million worth of BNB at today’s valuation.

It’s now been two and a half years since the crypto exchange froze the stolen funds, with community members criticizing Binance over a lack of communication on what’s happened to it.

The issue revolves around PopcornSwap, a protocol released on BNB Chain in January 2021 that performed a liquidity siphon scam in a near-instant rug pull upon launch, stealing tokens worth over $2 million at the time. BNB Chain-dedicated news outlet BSC News, which is partly supported by Binance’s accelerator fund, seems to have removed its coverage of the incident from 2021, though the page is still available on a web archive.

Typically, liquidity siphon rug pulls involve developers creating a new token and launching it on a decentralized exchange (DEX) platform. They attract liquidity by incentivizing users to provide their funds to the liquidity pool, which allows others to trade the token. However, malicious actors ultimately intend to drain the liquidity and steal the funds.

While Binance was able to freeze users’ assets on the BNB Chain mid-rug pull, temporarily stopping the damage, some two and a half years later, “the aftermath revealed an alarming lack of remediation for the affected users,” a community member known as “Neonmatrixbot” said on Twitter. “There has been no communication since.”

Neonmatrix suggested the absence of communication and action to address the situation raises concerns about Binance’s “customer first” ethos and centralized interference with the BNB Chain without resolution for users. “It shows them selectively interfering with on-chain transactions as a centralized body and, when they did, not following through for a complete resolution,” Neonmatrixbot added.

A potential resolution

Pointing to Binance’s ability to get the tokens frozen on BNB Chain and the potential for token burns and re-issuance, Neonmatrixbot questioned why a resolution was not forthcoming.

“In a normal blockchain world, it would be game over,” they said. “But Binance has shown the ability to freeze the tokens on their chain. And, with the periodic token burns, there’s an opportunity for them to burn the frozen tokens and reissue them to the originators.”

However, despite attempts by the community to engage Binance directly through various channels, including DMs, support tickets, tweets to Binance’s CEO Changpeng “CZ” Zhao and reaching out to reputable lawyers, they have been met with silence, Neonmatrixbot said.

The community of affected users also set up the PopcornSwap Rugpull channel on Telegram, with members expressing frustration at their attempts to engage with Binance being ignored.

“We’ve tried the direct approach by reaching out to Binance here, on Twitter and through tickets. I have also been in contact with people here who have tried involving lawyers from reputable firms, and yet, we’ve gotten nowhere,” channel member “Penguin Antarctica” said on Telegram. “Given the complexity of the other issues Binance is dealing with, I understand that Binance might have a lot on their plate, but the lack of response is discouraging, to say the least.”

Fellow Telegram channel member “Madden” agreed, adding that “they aren’t going to do anything just to be nice guys.”

Neonmatrixbot did praise the positive step Binance took in originally freezing the attacker’s wallet after the hack occurred but again criticized the lack of response since.

“We deserve answers,” they said. 

However, “it’s essential to highlight that Binance has demonstrated the ability to stop the BNB Chain during the big hack incident. This raises questions about their intentions and transparency, which regulators and the public should be aware of,” Neonmatrixbot added.

Regulatory concerns

The criticism comes at a time when Binance is dealing with regulatory issues in the U.S. and Europe. The Securities and Exchange Commission filed a lawsuit against Binance in June, alleging it had violated U.S. securities laws.

Last month, Binance announced it was exiting the Netherlands after failing to acquire regulatory approval. It also applied to deregister its local entity in Cyprus and is reportedly under investigation in France for alleged money laundering.

“This situation becomes more troubling when considering Binance’s increasing scrutiny from regulatory bodies and governments. It raises questions about their operational practices and the prioritization of user protection,” Neonmatrix added.

Binance did not respond to multiple requests for comment from The Block.

© 2023 The Block Crypto, Inc. All Rights Reserved. This article is provided for informational purposes only. It is not offered or intended to be used as legal, tax, investment, financial, or other advice.

Coinbase shares traded sharply higher on Thursday, breaching $100 per share for the first time in over a year after a U.S. federal court delivered a ruling on the Securities and Exchange Commission’s lawsuit against fintech firm Ripple Labs.

A mixed decision from the Southern District Court of New York indicated that secondary sales in XRP tokens did not constitute the sale of unregistered securities.

While the future of the case — which could now go to trial or be appealed — is not clear, Coinbase said that it will relist XRP. Shares in the exchange surged 24.5% to $107, according to TradingView.

XRP also had a banner day, rising as much as 80%.

Thursday’s gains add to Coinbase’s 2023 rally, which was super charged by BlackRock’s filing for a spot bitcoin exchange-traded fund on June 15. The exchange’s stock, which has risen 193% so far this year, has been further bolstered by headlines that it would serve as the market surveillance partner for a number of exchanges in the race to launch such a product. 

© 2023 The Block Crypto, Inc. All Rights Reserved. This article is provided for informational purposes only. It is not offered or intended to be used as legal, tax, investment, financial, or other advice.

The investor in early-stage crypto companies has remained one of the most active investors in the space despite a bear market and the collapses of FTX and three banks.