As SEC drops Ripple appeal, a clearer path to an XRP ETF emerges

News of the Securities and Exchange Commission and Ripple's legal battle ending after over four years could have broader effects on the future of crypto trading and whether an XRP exchange-traded fund is in the works. 

"In some ways, the dismissal in Ripple is more significant because it covers a broader area of the law," said Enzer, who also represented Coinbase as amicus curiae in summary judgment litigation in the Ripple case.

Ripple's case was also further along than others and had gone through discovery and summary judgment, while others had just started, Enzer said. Ripple's case was brought in 2020, while others were charged in 2023. 

Ripple CEO Brad Garlinghouse said his firm's years-long legal battle had come to an end last week after the executive said the agency pulled its appeal. The SEC and Ripple have been at odds for years after the agency accused Ripple of raising $1.3 billion through the sale of XRP, which it claimed was an unregistered security. 

"XRP is not a security," Enzer also said. "Indeed, almost no tokens are."

Enzer noted that there are exceptions to that, such as if a token were designed with all the properties of a stock. 

The ruling

In July 2023, U.S. District Judge Analisa Torres ruled that certain types of Ripple’s sales, called programmatic, of XRP did not violate securities laws due to a blind bid process, but found that direct sales to institutional investors were securities.

Programmatic sales involved Ripple selling XRP through market makers on secondary exchanges like Coinbase or Kraken, Enzer explained.

Torres’ ruling effectively said that secondary market trading of crypto assets is not a securities transaction, meaning exchanges don’t need to register. Most tokens, including XRP, would qualify as commodities or property, he added.

With the SEC opting not to appeal, Torres' decision now stands as the "law of the land," and secondary market sales are not securities, Enzer said.

"We now have a final ruling that the regulator has chosen not to appeal, that in fact, secondary market sales, or at least indirect sales on a secondary exchange of the tokens and distributions of tokens to employees as comp are not securities transactions," he said. "This is huge for the industry, enormous, and it took years of litigation to get to it."

The SEC's move to drop its appeal leaves a part of Judge Torres' ruling intact — that Ripple violated the law through the direct sales of XRP to institutional investors, for which Ripple was fined $125 million. 

Days after the SEC decided not to appeal, Ripple Chief Legal Officer Stuart Alderoty said that the firm opted out of filing a cross-appeal, which allows a party in a suit to challenge different aspects of a court ruling. Alderoty also said that the SEC will keep $50 million of a previous $125 million fine from Judge Torres' ruling regarding institutional investors. 

Could there be an XRP ETF?

Multiple firms, including Grayscale, WisdomTree and Bitwise, are vying for a spot XRP ETF and looking to get the SEC's sign-off. Meanwhile, bettors on prediction platform Polymarket put the odds of an XRP ETF being approved this year at an 80% chance. 

"It would not surprise me at all if we see an XRP ETF," Enzer said, but added that he would have said it no matter the outcome of the Ripple case, given the SEC's change in stance.

In a message to The Block, Bloomberg Analyst James Seyffart said the industry could have an XRP ETF in the following months and that it will likely see an XRP futures ETF first. "So our odds of approval in 2025 go up," he said. 

As for timing, Ripple's Brad Garlinghouse told Bloomberg TV last week that he believes an XRP ETF could be launched in the second half of 2025. 

"I have immense confidence on the ETF," Garlinghouse said. "I think there's 11 different filings pending with the SEC to launch ETFs from everybody from Bitwise to Franklin Templeton and a whole bunch of people in between."

What's next for crypto enforcement 

Over the past several weeks, the SEC has rescinded controversial crypto accounting guidance,  looked to re-examine rules affecting crypto, created a crypto task force and issued statements on memecoins and proof-of-work

"The body language, the direction of travel is that the SEC is looking to create a constructive relationship with the crypto industry," Enzer said, essentially reversing course. 

At the state level, it depends.

"There is an expectation that state attorneys general will be aggressive, or could be aggressive in bringing in enforcement cases in the crypto sector as the federal level steps back," Enzer said. "I think you'll still see enforcement at both levels, if there is harm to consumers through fraud."

Federal and state regulators will step in if there are national security concerns or market manipulation. However, Enzer added, there will be fewer "technical registration cases." 

"I think the federal government is moving in the right direction, and I hope the states will follow," he said.