The price of LBRY Credits (LBC) has more than doubled after the U.S. regulator accepted that the token itself is not a security.
The native cryptocurrency behind the file-sharing and payment network jumped 80% on Wednesday, according to data from CoinGecko, in response to the latest development in LBRY’s battle with the Securities and Exchange Commission (SEC).
In an appeal hearing which took place on Monday, a New Hampshire district court judge ruled that transactions of LBC on the secondary market were not securities.
The move was hailed by some as a win for the crypto industry, as it limits the SEC’s enforcement reach.
The proceedings have rippled across the industry, with others in the XRP community also hoping it would set a favorable precedent for Ripple’s own ongoing battle with the SEC.
What happened between SEC and LBRY
The SEC took action against LBRY in March 2021, contending that it had sold an unregistered security. The company replied that LBC was not a security at all, but a digital currency.
The protocol operator lost that case in November last year, setting what LBRY said was a “dangerous precedent” that could lead to all cryptocurrencies being treated as securities.
But some issues remained outstanding following that ruling. On Monday, the focus turned to the question of whether secondary market sales should be included in the injunction that the SEC wants the court to approve, which would prohibit the sale of LBC.
John Deaton, an attorney who has also previously raised concerns in the XRP case, appeared as an amicus curiae—a friend of the court—on behalf of tech journalist Naomi Brockwell.
In a video made after Monday’s ruling, Deaton explained that he had pushed for clarity on who would be covered by the injunction.
As part of this line of argument, he cited a paper by lawyer Lewis Cohen, who examined all security lawsuits in the U.S. since the 1946 landmark case SEC vs W.J. Howey, which set the test for what qualifies as an investment contract.
“Never once was there a case that said the underlying asset is a security,” Deaton said in the video. “Beavers are beavers, but they were used in an unregistered securities offering. Bitcoin has been used in an unregistered securities offering. Chinchillas have been used, condos have been used, orange groves and oranges have been used. That does not mean the underlying asset is a security.”
As a result, the judge had SEC representatives agree on the record that selling LBC on the secondary market would not count as an unregistered securities offer.
According to Deaton, the judge told him “I’m going to make it clear that my order does not apply to secondary market sales.”
What’s next for LBRY?
The final wording of the judge’s decision in the LBRY case is not yet available. Its release will shed more light on what penalties will be handed down to the protocol operators, as well as the exact wording of any clarifications.
LBRY itself said on Twitter that the judge’s comments would not matter if the SEC continues its aggressive approach.
Many are calling yesterday a victory for LBRY, but we haven’t won yet.
It doesn’t matter if the judge says $LBC is not a security if third-parties (exchanges, etc) are still too terrified of the SEC to work with it.
That’s the real test.
— LBRY 🚀 (@LBRYcom) January 31, 2023
“It doesn’t matter if the judge says LBC is not a security if third-parties (exchanges, etc) are still too terrified of the SEC to work with it,” the group wrote.
The company has also repeatedly said that it is unlikely to survive the court battle, due to legal costs and the potential of an SEC fine in the tens of millions of dollars.
But crypto enthusiasts were still cheered by this week’s ruling, on the basis that it will make it harder for the SEC to argue that XRP is an unregistered security in its case against Ripple.
“Remember the LBRY decision was cited 20+ times in the SEC’s reply to Ripple, because it was a good ruling for the SEC,” Deaton said in the video. “So if there’s a good ruling that comes down that says secondary market sales are not in play … that’s something that might be able to be cited to the judge.”
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Source: https://decrypt.co/120332/lbc-token-soars-sec-says-secondary-token-sales-not-securities
