Ripple is marking a significant moment with the recent decision from the United States Securities and Exchange Commission (SEC) to refrain from pursuing legal action against the company, though this development does not bring much legal clarity for the broader cryptocurrency sector.
It appears the financial regulator has chosen not to move forward with an appeal involving Ripple, which is known for its digital asset XRP. The case was viewed by many in the industry as a striking instance of regulatory overreach by the SEC during the tenure of former chair Gary Gensler.
Ripple’s CEO, Brad Garlinghouse, remarked that this choice offers substantial certainty for Ripple, adding that, although the case is nearly resolved, there are still a few matters the firm needs to address with the SEC. He stated, "We are now in a position to decide how we want to move forward."
Stuart Alderoty, Ripple’s chief legal officer, shared on X that “Today, Ripple advances — stronger than ever. This landmark case established a precedent for the domestic cryptocurrency sector.”
Ripple and the wider cryptocurrency community are treating this as a considerable win, yet the SEC’s choice does not establish any legal precedent, and the much-desired "guardrails" that the industry has been pushing for remain undefined.
Implications of the Ripple Ruling on Legislation and Precedent
The cryptocurrency lobby reacted swiftly to celebrate the SEC’s announcement shared by Garlinghouse during the Digital Asset Summit in New York on March 19. Market reactions were immediate, with XRP experiencing a 9% increase in value shortly after the news broke.
Advocates and industry observers took to X to discuss the potential implications this case could have on the crypto landscape. However, legal analysts express uncertainty regarding the broader ramifications of the SEC’s decision.
Aaron Brogan, an attorney, commented that the Ripple case “does not create a precedent that any other company can rely upon." While he acknowledged that the regulatory environment is more welcoming to cryptocurrency enterprises today, clarity around the SEC’s policies will only emerge after a new chair is appointed.
Further, Brian Grace, the general counsel at a decentralized autonomous organization, pointed out that the decision in 2023 from which the SEC appealed does not constitute a legal precedent.
He noted on March 19, "The Ripple decision is not binding legal precedent. It was a ruling from a single district court judge based on specific case details."
The repealing of the SEC’s appeal has minimal impact on current legislative efforts aimed at establishing a coherent framework for the cryptocurrency sector. Grace emphasized that it is up to Congress, rather than the SEC, to enact substantial legal reforms for the crypto industry.
“The U.S. cryptocurrency sector needs new legislation to ensure clarity and protection,” he stated. “Without it, litigants can continue to file lawsuits in district courts nationwide, relying on Howey. A more favorable SEC does not alter this. We need a dedicated crypto market structure law.”
Brogan expressed skepticism about the ruling’s direct influence on the legislative process, but noted that the SEC still has the opportunity to clarify questions surrounding its regulations.
“I think many in Congress would welcome that, given that the market structure legislation currently being considered seems stalled,” he remarked.
Garlinghouse Aims to Resolve Remaining Issues with the SEC
While the SEC’s decision might indicate a definitive stance on whether XRP is classified as a security, the legal tussle between Ripple and the SEC appears to be far from over.
In a Bloomberg interview on March 19, Garlinghouse mentioned the possibility of pursuing a cross-appeal to revisit the 2023 ruling where Judge Analisa Torres ruled that Ripple’s publicly sold tokens were not securities but imposed a $125 million penalty on the company, indicating those tokens should have been offered to institutional investors.
The company is also facing a five-year fundraising prohibition under the "bad actor" rule, which could significantly affect its operations, according to Brogan.
“At this point, our focus is on whether we want to contest the $125 million fine,” said Garlinghouse.
He added that while the ruling regarding XRP being a non-security was a clear legal win, there are still aspects that could be refined. The firm is weighing whether to take legal action or negotiate a resolution with the SEC to resolve ongoing issues.
Meanwhile, legislative progress on the stablecoin bill continues in Congress. Bo Hines, the executive director of the President’s Council of Advisers on Digital Assets, anticipates that the finalized version will be available within a few months.
The crypto framework bill FIT 21 was unable to pass through the Senate during the 2024 legislative session, but some lawmakers remain hopeful that it will advance with “modest changes” in the current session.
The Blockchain Association, a cryptocurrency lobby group, is optimistic about the passage of both pieces of legislation by August, with U.S. Representative Ro Khanna, a Democrat from California, suggesting they could be finalized by the end of the year.