Coinbase Legal Triumph Over XRP Sparks Speculation: SEC May Hesitate on Appeals in Ripple Case

The ongoing legal battle between the U.S. Securities and Exchange Commission (SEC) and Ripple, the company behind the XRP cryptocurrency, may take a new turn depending on the outcome of another case involving Coinbase, the largest crypto exchange in the U.S.

Coinbase is facing a lawsuit from the SEC over its proposed lending product, which would allow users to earn interest on their crypto holdings. The SEC claims that the product involves securities and requires registration, while Coinbase argues that the product is not a security and falls outside the SEC's jurisdiction.

Coinbase filed a motion to dismiss the lawsuit in August 2023, challenging the SEC's authority to regulate crypto exchanges. The motion was heard by Judge Katherine Failla in the U.S. District Court for the Southern District of New York on January 17, 2024, but no ruling has been issued yet.

If Coinbase wins the motion to dismiss, it could have a significant impact on the SEC's case against Ripple, which also hinges on the question of whether XRP is a security or not. The SEC alleges that Ripple sold XRP as an unregistered security to investors, while Ripple maintains that XRP is a digital asset and not subject to SEC regulation.

In July 2023, Judge Analisa Torres, who is presiding over the SEC v Ripple case, issued a groundbreaking ruling that programmatic sales of XRP on crypto exchanges do not satisfy the third prong of the Howey Test, a legal framework used to determine whether an asset is a security or not. The ruling was a major victory for Ripple and XRP, as it implied that retail investors who bought XRP on exchanges were not buying securities.

However, the SEC has signaled its intent to appeal the ruling, arguing that it is a crucial issue that needs appellate review. The SEC also filed a motion to compel Ripple to produce more documents related to its XRP sales, which is pending before Judge Torres.

If Coinbase succeeds in dismissing the SEC's lawsuit, it could undermine the SEC's argument that it has the statutory authority to regulate crypto exchanges and the assets they offer. This could deter the SEC from appealing the programmatic sales ruling, as it would face a higher risk of losing the appeal.

A favorable outcome for Coinbase and Ripple could also set a precedent for the crypto industry, as it would limit the SEC's power to regulate crypto assets and exchanges by enforcement. This could pave the way for more clarity and innovation in the crypto space, as well as boost the adoption and value of XRP and other digital assets.