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Federal Court Ruling on Secondary Market Sales Forestalls SEC Appeal Against Ripple

In a recent ruling on a legal battle involving Coinbase, the U.S. Second Circuit Court of Appeals made significant strides in bringing clarity to the regulation of crypto transactions. This decision serves as an important precedent, notably impacting the ongoing case between the U.S. Securities and Exchange Commission (SEC) and Ripple Labs regarding XRP.

John Reed Stark, a former SEC official, highlighted the significance of Judge Katherine Failla’s decision in rejecting the notion that secondary sales of crypto could be considered securities, noting that the prior judgment by Torres had dealt a blow to both Ripple and Coinbase. However, the latest ruling brought much-needed clarity regarding secondary market transactions.

Paul Grewal, chief legal officer of Coinbase, on X expressed his happiness with the court’s ruling, pointing out that it clarified the legality of secondary trading in digital assets. Grewal stated that the plaintiffs’ contention that these transactions do not qualify as investment contracts was supported by Coinbase’s position in court.

The lawsuit involved various federal claims under the Securities Exchange Act of 1934 and the Securities Act of 1933, as well as state law claims under New Jersey, California and Florida securities laws. The court ruled in favor of Coinbase, determining that the company did not have ownership of the tokens traded on its platform and therefore was not liable under relevant statutes.

Regarding the Ripple case, Judge Torres made distinctions between institutional buyers and programmatic buyers of XRP. While institutional buyers purchased XRP directly from Ripple, programmatic buyers engaged in secondary market transactions. However, the court did not make definitive conclusions regarding the nature of secondary market transactions, indicating that this aspect was not fully addressed during the proceedings. The judge determined that XRP programmatic sales do not qualify as securities because they do not meet the Howey Test.

There were concerns from the XRP community that the SEC would appeal following Failla’s statement that secondary market transactions involving cryptocurrency assets could potentially constitute investment contracts. However, the Second Circuit’s recent decision provides a strong precedent against any potential appeals by the SEC.

Following the recent legal developments, XRP prices experienced a notable increase of nearly 2.5%. At the time of reporting, the price of XRP was $0.5947, marking a 2.2% increase from the previous day. However, the 24-hour trading growth witnessed a decline of 40%, reaching $937.7 million. The market capitalization of XRP presently stands at $32.7 billion.

Industry actors such as Marathon Digital Holdings Inc. (NASDAQ: MARA) could possibly be keeping an eye on other ongoing lawsuits initiated by the SEC to see which pivotal rulings provide further clarification on the regulatory direction for blockchain an cryptos.

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