Cryptocurrencies rallied as digital-asset advocates touted a ruling from a federal judge in the US Securities and Exchange Commission’s lawsuit against Ripple Labs Inc. as a victory for the industry when it comes down to what is classified as a security.

XRP, the token at the center of the dispute, almost doubled to as much as 94 cents. Other tokens that were recently labeled as unregistered securities by the SEC such as Solana and Cardano also increased, rising around 19% and 16%, respectively. Bitcoin edge higher, gaining about 3% to $31,339.

“This is a win for the crypto industry,” said Ashok Ayyar, a lawyer at Ashbury Legal. “It confirms that XRP the token is not an investment contract, and therefore a security, by itself.”   

Shares of crypto-dependent companies also rallied, with Coinbase jumping 22%, MicroStrategy rising 10% and crypto miner Marathon Digital climbing 14%. 

US District Judge Analisa Torres in New York on Thursday said that the crypto firm’s sales of the XRP token to sophisticated investors met the test for an investment contract under federal securities law.

“Institutional buyers would have understood that Ripple was pitching a speculative value proposition for XRP with potential profits to be derived from Ripple’s entrepreneurial and managerial efforts,” the judge wrote.

But Torres ruled that didn’t apply to programmatic investors, meaning the broader public. She said there was no evidence that such investors could parse the many statements made by Ripple about XRP. The judge said many statements cited by the SEC may not have been shared with the broader public.

“My overall impression is this is a positive decision for the digital asset industry,” said Daniel Tramel Stabile, partner at Winston & Strawn. “The court expressly concluded that XRP is not, in and of itself, a security. Instead, the focus must be on the circumstances of the offering itself.”

Since 2017, Ripple’s so-called programmatic sales represented less than 1% of the global XRP trading volume, according to the court filing Thursday. Therefore, the vast majority of individuals who purchased XRP from digital asset exchanges did not invest their money in Ripple at all, the document said.

“Therefore, having considered the economic reality and totality of circumstances, the Court concludes that Ripple’s Programmatic Sales of XRP did not constitute the offer and sale of investment contracts.”

Whether cryptocurrencies are securities has been a major question hanging over the industry, which has long fought efforts to regulate it by arguing that they are not.

The SEC sued San Francisco-based Ripple and top executives in December 2020. It accused the company, co-founder Christian Larsen and Chief Executive Officer Bradley Garlinghouse of misleading investors in XRP by selling more than $1 billion worth of the tokens without registering them, depriving investors of information about the cryptocurrency and Ripple’s business.   

Shares of Coinbase Global Inc., the largest US crypto exchange, climbed as high as $109.21. The exchange is embroiled in a lawsuit with the SEC that alleges that it sold tokens that are unregistered securities.

“This underscores that direct sales of digital assets by an issuer will often be securities, but other sales, most notably sales on the secondary market, are unlikely to be deemed securities, which is a key argument in Coinbase’s defense against the SEC,” said Elliott Stein, Bloomberg Intelligence senior analyst.

Cryptocurrencies had already been on a tear this year, with Bitcoin up around 90% since December. The largest digital asset tumbled 64% last year after a string of industry scandals and bankruptcies, such as by lender Celsius. Former Celsius Network Ltd. Chief Executive Officer Alex Mashinsky was accused by US prosecutors on Thursday of pumping up the price of his firm’s token to entice customers to the platform.

In recent weeks, a raft of filings for a spot Bitcoin ETFs in the US, driven in large part by an application by Wall-Street heavyweight BlackRock Inc., has reinvigorated crypto traders. The court ruling on XRP shouldn’t have any impact on the approval of ETFs.

--With assistance from David Pan and Chris Dolmetsch.

This article was provided by Bloomberg News.