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The stock of crypto trading platform

Coinbase Global

soared about 20% Thursday after a federal judge ruled a crypto token didn’t, in and of itself, meet the definition of a security.

The judge made the ruling in a closely watched case between the Securities and Exchange Commission and Ripple Labs, the crypto company behind the XRP token. The SEC has said XRP tokens are securities that Ripple failed to register with the agency, while Ripple argued the tokens didn’t meet that standard under the law.

The ruling by the U.S. District Court for the Southern District of New York amounted to a partial win for both parties.

The judge said tokens Ripple sold to institutional buyers pursuant to written contracts did meet the securities test. However, the judge also said tokens sold in through the use of trading algorithms to the general public on digital-assets exchanges didn’t meet that test. Crucially, the judge said that the nature of the transaction itself, rather than the token, determined its status under the law.

For crypto investors, and companies such as

Coinbase

(ticker: COIN), that could mean many tokens sold in the secondary market aren’t securities, severely hamstringing the SEC’s ability to go after trading platforms.

“This is a crazy opinion that if stands has the potential to fundamentally reshape all capital markets, not just crypto,” said Todd Phillips, a principal with Phillips Policy Consulting who has testified in front of Congress on crypto legislation. Phillips said the judge’s ruling, which was likely to be appealed, created a “giant loophole that you can drive a truck through in the securities laws.”

The SEC in June sued Coinbase and competitor Binance, alleging they allowed trading of unregistered securities and should have registered themselves with the agency.

Coinbase didn’t immediately respond to a request for comment. Chief Legal Officer Paul Grewal in a tweet after the decision wrote, “Most days I love being a lawyer. Today is one of them,” without giving further context.

Ripple CEO Brad Garlinghouse in a tweet appeared to claim victory, writing: “Thankful to everyone who helped us get to today’s decision—one that is for all crypto innovation in the US. More to come.”

An SEC spokesperson in an email said the agency was pleased that the court found XRP was sold by Ripple as investment contracts in certain circumstances, as well as that the court sided with the agency in some other arguments. The spokesman said the agency would continue to review the decision.

Crypto industry executives cheered the ruling.

“This fundamentally undercuts the SEC’s argument that it has the authority over these underlying assets and that regulatory clarity already exists,” said Sheila Warren, CEO of the Crypto Council for Innovation trade group, in a statement.

Crypto company Gemini, which has also been sued by the SEC over a different kind of product, in a tweet said it would consider listing XRP on its trading platform. Co-founder Tyler Winklevoss wrote, “The Ripple ruling today confirms that the @SECGov and @GaryGensler are not the regulator of crypto.”

Coinbase stock had risen 20% to $103.25 late Thursday after the decision.

The prices for XRP had risen about 69% in the past 24 hours, while the prices of other so-called “alt coins” such as Solana and Cardano had risen more than 15%.

Write to Joe Light at [email protected]