Crypto surges and sinks as two New York judges diverge on whether it is a security

financialpost.com:

A sharp split between two federal judges in New York has boosted and then dragged down cryptocurrency values in recent weeks, as investors look for clarity on a crucial question: Is crypto a security?

Shares in Coinbase Global Inc., which runs the biggest crypto exchange in the U.S., soared 24 per cent on July 13 after U.S. District Judge Analisa Torres, weighing a Securities and Exchange Commission lawsuit against Ripple Labs, found that the company’s XRP token wasn’t a security when sold to individual investors on public exchanges. The SEC had argued that it was — and an unregistered one at that. 

Then, on Aug. 1, Coinbase sank as much as 9.5 per cent a day after U.S. District Judge Jed Rakoff ruled in an SEC case against Terraform Labs Pte and its co-founder, Do Kwon, that the company’s Terra USD token may indeed be a security when sold to retail investors.

Neither of the rulings, by judges who sit one floor apart in the Manhattan federal courthouse, has any direct effect on a separate SEC case claiming Coinbase is illegally operating as an unregistered securities exchange. But all three cases depend, to some extent, on whether cryptoassets can be regulated under decades-old securities laws.

The split also showed that the legal uncertainty surrounding crypto regulation is affecting the shares of Coinbase and the value of individual cryptocurrencies, several of which rose on Torres’s ruling and fell on Rakoff’s.

Some of that impact can be chalked up to the inherent volatility of the asset class, said Richard Levin, chair of the financial technology and regulation practice at the law firm Nelson Mullins Riley & Scarborough LLP.

Part of the mid-July run-up was “overblown, driven by a bit of a fanboy culture,” Levin said.