What happened
The XRP (XRP -2.30%) cryptocurrency, often called Ripple, was on a roll Friday morning. The token had gained 10.5% in 24 hours as of 9:30 a.m. ET, boosted by a favorable procedural decision in a long-running lawsuit against the Ripple Labs company.
So what
Judge Analisa Torres of the Southern District Court in New York just allowed Ripple Labs to file a couple of amicus curae (friend of the court) briefs in its defense against complaints by the Securities and Exchange Commission (SEC).
In these filings, two third-party companies will describe how they use XRP for everyday business purposes. Furthermore, these users will note that they don’t expect XRP tokens to gain value over time, as you would with investment-grade securities.
The SEC had objected to these briefings but Judge Torres sided with Ripple Labs this time. It’s a small victory, but every little bit of legal ammunition can make a difference in cases like this.
Now what
The legal process dates back to December 2020, when the SEC filed a lawsuit against Ripple on the grounds that the digital token was used to raise money improperly. In the SEC’s eyes, Ripple had effectively executed an initial public offering of XRP tokens without properly registering XRP as a security.
Ripple Labs disagrees, arguing that XRP is a functional tool that shouldn’t be treated as a security. Its intended use as a frictionless medium of exchange for sending money across international borders makes XRP more like a normal currency, such as the euro or the U.S. dollar. So the two sides disagree sharply on what kind of asset XRP is, and the entire case hinges on this question.
The case throws a large shadow over the cryptocurrency market as a whole, as the final outcome will set a precedent for how the government should treat other cryptocurrencies. Leading crypto exchanges such as Coinbase and Robinhood Markets are not letting their users buy, sell, or use XRP while the SEC’s legal concerns are being explored.
So XRP just pocketed another small victory in a long courtroom brawl with high stakes. More filings of briefs, redactions, and motions to seal sensitive documents will follow over the next few weeks, leading up to a ruling in 2023. Ripple Labs CEO Brad Garlinghouse expects a final decision in the first half of next year, because the court appears to agree that this case has special precedent-setting importance to the massive cryptocurrency sector.
Anders Bylund has positions in Coinbase Global and XRP. The Motley Fool has positions in and recommends Coinbase Global. The Motley Fool has a disclosure policy.