Judges Challenge SEC’s Stance on Digital Assets, Ripple and Kraken Cases

• Judges criticized the SEC’s claim that all digital assets should be classified as securities, questioning the regulator’s legal approach.
• In the Ripple case, the court dismissed the SEC’s assertion that the XRP token itself is a security, a major setback for the agency.
• The SEC is expanding its regulatory reach. Recently, it targeted OpenSea over NFTs, marking a controversial new phase in its oversight.

Judges across recent court rulings have raised significant concerns about the U.S. Securities and Exchange Commission’s (SEC) strategy for regulating cryptocurrencies, specifically the agency’s broad classification of digital assets as securities. These criticisms represent a growing judicial challenge to the SEC’s regulatory stance.

One of the most notable examples came from the SEC v. Ripple case, where Judge Torres firmly ruled that the XRP token does not qualify as a security. This decision undermined the SEC’s position that merely existing as a digital asset would place XRP under securities regulation. The ruling marked a pivotal moment in the legal battle, weakening the SEC’s argument and reinforcing the need for clearer regulatory definitions.

Furthermore, in the SEC v. Payward Inc. case, known as the Kraken case, Judge Orrick delivered another blow to the SEC’s approach. He asserted that “orange groves are no more securities than cryptocurrency tokens are,” suggesting the agency’s failure to differentiate between the nature of digital assets and how they are sold. His comments underlined the importance of maintaining a clear distinction between the assets themselves and their sales transactions.

The challenges to the SEC’s stance continued in the recent SEC v. Binance case, where Judge Jackson rejected the regulator’s argument that cryptocurrency tokens embody investment contracts. Instead, he clarified that these tokens could only be considered part of an investment contract under specific circumstances, thus refuting the SEC’s broader claims.

These rulings come at a time when the SEC has been intensifying its scrutiny of the cryptocurrency sector. Over the past year, the commission has issued Wells notices, initiated lawsuits, and reached settlements with multiple crypto entities, including Ethereum-based projects, centralized exchanges like Coinbase, Kraken, Binance, and other trading platforms such as Robinhood.

Earlier this month, the court ruled in favor of Ripple, reducing the SEC’s demand by nearly 94% and requiring the company to pay $125 million to settle the case. This outcome signaled the end of a four-year-long legal battle and further weakened the SEC’s regulatory authority.