Ripple ruling complicates Coinbase’s defense against SEC: Berenberg

Ripple ruling complicates Coinbase's defense against SEC: Berenberg

The Ripple Ruling and Its Implications for Coinbase’s Defense Against the SEC


The blockchain industry is no stranger to legal battles and regulatory scrutiny. Recently, the U.S. District Court’s ruling on Ripple Labs’ sale of XRP tokens has stirred up further controversy. While Coinbase shares initially saw a positive response to the ruling, a subsequent rejection from another judge has raised concerns. In this article, we will explore the implications of these events for Coinbase’s defense against the U.S. Securities and Exchange Commission (SEC).

The Ripple Ruling and Judge Rakoff’s Rejection

The U.S. District Court’s ruling in favor of Ripple Labs raised hopes for cryptocurrency exchanges like Coinbase. It appeared to provide a precedent stating that selling XRP tokens did not violate securities laws. However, Judge Jed Rakoff’s recent rejection of this ruling has complicated matters. Judge Rakoff argued that Judge Torres had misinterpreted the Howey test, a critical tool used to determine if an asset qualifies as a security.

To better understand the significance of this ruling and rejection, let’s delve into the Howey test itself.

The Howey Test and its Relevance

The Howey test originates from a landmark U.S. Supreme Court case and serves as a crucial benchmark for gauging whether a transaction can be classified as an investment contract, making it a security. This test primarily focuses on the presence of the following elements:

  1. Investment of money
  2. In a common enterprise
  3. With an expectation of profits
  4. Derived solely from the efforts of others

Judge Rakoff’s contention lies in Judge Torres’ differentiation between institutional sales and sales to retail investors on crypto exchanges. According to Rakoff, the Howey test should make no distinction between purchasers. This interpretation challenges the notion that certain sales may be exempt from securities regulations, which poses implications for Coinbase’s defense strategy against the SEC.

Coinbase’s Defense: Major Questions Doctrine

In addition to the Ripple ruling, Coinbase has relied on the major questions doctrine to defend itself against the SEC’s case. This doctrine stems from a Supreme Court ruling that prohibits agencies from exceeding their mandate. Its aim is to prevent regulatory overreach and ensure adherence to the limits of authority.

However, Judge Rakoff’s rejection of the major questions doctrine in a separate case, involving Terraform Labs, adds another layer of complexity to Coinbase’s defense. The court’s denial of Terraform Labs’ use of the doctrine weakens the precedent Coinbase hoped to utilize. Consequently, this rejection presents a potential hurdle for Coinbase in fighting the SEC’s charges.

Implications for Coinbase and Analyst Opinion

The legal developments surrounding Ripple Labs and Coinbase have led Berenberg, an investment bank, to adopt a cautious stance towards Coinbase shares. In their research report, Berenberg analysts, led by Mark Palmer, maintained a hold rating on Coinbase with a price target of $39, considering the stock “uninvestable” in the near term.

Coinbase shares initially experienced a positive response to the Ripple ruling but dropped by 8% to $90.85 in early trading following Judge Rakoff’s rejection. Despite this recent decline, the shares have still surged by 155% this year. The market’s uncertainty regarding regulatory outcomes and legal battles underscores the need for caution in assessing Coinbase’s future performance.


The blockchain industry is continuously navigating the intricacies of legal battles and regulatory challenges. The recent Ripple ruling and subsequent rejection from another judge have cast a shadow of doubt on Coinbase’s defense against the SEC. Judge Rakoff’s objection to the distinction made between institutional sales and sales to retail investors on crypto exchanges challenges the interpretation of the Howey test. Additionally, the rejection of the major questions doctrine represents another obstacle for Coinbase’s defense strategy. These legal developments have prompted analysts to adopt a cautious outlook on Coinbase shares. As the industry moves forward, the outcome of these legal battles will undoubtedly shape the future trajectory of blockchain technology and its regulatory framework.

Read more: Judge Rejects Ripple Ruling Precedent in Denying Terraform Labs’ Motion to Dismiss SEC Lawsuit

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