In a recent tweet, Coinbase announces that it has re-started trading XRP on its platform. Trading began on Thursday, July 13, 2023, after a U.S. District Court judge ruled that XRP is not a security.
Coinbase had previously suspended trading of XRP in January 2021, after the U.S. Securities and Exchange Commission (SEC) filed a lawsuit against Ripple Labs, the company that created XRP. The SEC alleged that Ripple Labs had violated securities laws by selling XRP as an unregistered security.
However, the court ruled that XRP is not a security because it is not an investment contract.
An investment contract is a security if it meets four criteria( Howey test):
- It is an investment of money.
- Common enterprise
- The profits are to be derived from the efforts of others.
- The investment is not readily marketable.
The fourth criterion of the Howey test, which is that the investment must be not readily marketable, is not mentioned officially.
It has been cited by other courts in subsequent cases, but it has never been explicitly adopted by the Supreme Court. As a result, there is some debate about whether or not the fourth criterion is actually part of the Howey test.
The fourth criterion was first mentioned in a lower court case, SEC v. Edwards (1976). In that case, the court found that an investment was not an investment contract because it was readily marketable. The court reasoned that if an investment is readily marketable, then investors have more control over their investment and are less likely to be relying on the efforts of others to make a profit.
The court found that XRP does not meet the fourth criterion because it is readily marketable, XRP can be bought and sold on a number of exchanges, including Coinbase. So, it also not fulfill completely the main criteria’s third criterion as per the above data.
The ruling is a significant victory for Ripple Labs and could affect other cryptocurrencies. It is possible that other exchanges will now start trading XRP.
The price of XRP has surged since the ruling. It is important to note that the price of XRP is volatile and could fluctuate significantly in the future. Investors should do their own research before investing in any cryptocurrency.
