| In this issue of the Bloomberg Crypto Newsletter, Emily Nicolle examines the ramifications of two court decisions at odds with one another.
The court system giveth, and the court system taketh away. Shortly after the crypto industry was handed a much-needed win regarding how tokens should be viewed from a legal perspective, the victory turned to ashes in its mouth. And with a heady pipeline of further court cases, it's a safe bet to expect continued volatility. Whether cryptocurrencies should be considered securities or a commodity is a long-standing debate in the US, and the outcome will be crucial to future oversight. In the absence of any specific legislation for digital assets, the Securities and Exchange Commission and the Commodity Futures Trading Commission have instead taken to filing enforcement actions against crypto firms they allege broke rules, each assuming the industry falls under their respective jurisdictions. Three weeks ago, it seemed to crypto enthusiasts like the clouds were parting, if only just a bit. A July 13 decision by US District Judge Analisa Torres in a case brought by the SEC found that the token XRP was a security when initially sold to institutional investors by its creator Ripple Labs, but not when sold to retail on the secondary market. Crypto rejoiced, XRP rallied and shares of Coinbase — itself a target of the SEC — had their best day in over a year. Then crypto learned the hard way that judges don't always agree. In an SEC case on Monday against Terraform Labs and its co-founder Do Kwon (accused by the agency of defrauding investors who lost at least $40 billion when the project blew up), US District Judge Jed Rakoff explicitly rejected Torres's reasoning for retail investors, saying it depends on how tokens are marketed. Cue ire and clenched fists, along with XRP and Coinbase giving up some gains. To be sure, the concept of crypto as a non-security was already on shaky ground. Torres's Ripple ruling was perceived as impractical by many lawyers inside and outside the crypto industry, who said her interpretation could put even traditional instruments like stocks out of bounds. The SEC is likely to appeal the XRP judgment, and a looming docket of bankruptcy cases, expected actions and the trial of FTX co-founder Sam Bankman-Fried may yet result in more surprise opinions. Given the procedural differences between the Ripple and Terraform cases, legal analysts say the industry won't get a definitive answer until the Supreme Court or Congress revisit the so-called Howey test, long used to determine what a security is. There will likely be moments of joy and despair along the way, and an industry that's experienced a fair amount of upheaval over the past two years will probably see more of it. | 
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