By Tom Westbrook and Rae Wee

SINGAPORE Bitcoin was hovering near its highest so far this year on Friday after crypto investors took encouragement from a legal victory in which the cryptocurrency XRP was ruled not to be a security.

A U.S. judge said on Thursday that Ripple Labs Inc did not violate securities law by selling its XRP token on public exchanges.

The case marks the first win for a cryptocurrency company in a lawsuit brought by the U.S. Securities and Exchange Commission. Although the decision was specific to the individual case, it unleashed a wave of optimism among crypto investors that more cryptocurrencies may also not be deemed securities.

Bitcoin hit its highest price since June 2022 earlier, touching $31,818, before edging down to trade around $31,235 at 1349 GMT on Friday.

Second-biggest token ether had its best session since March on Thursday and XRP, which the U.S. judge ruled could be legally sold on public crypto exchanges, soared 73% on Thursday and held most of these gains on Friday.

As bitcoin retreated from the highs, the shares of crypto-related stocks rose in regular trading, having dropped in the pre-market on Friday.

"The regulatory environment is changing," said Matthew Dibb, chief investment officer at crypto asset manager Astronaut Capital. "And by what we have seen in the last 24 hours, it could be for the better."

Justin d'Anethan, head of business development in Asia at Keyrock, a digital assets market maker in Hong Kong, said finding that XRP tokens sold on public crypto exchanges were not securities under law "probably serves as a precedent".

"Ripple stakeholders were waiting for some regulatory clarity. Yesterday the court seems to have provided just that," he said.

SLOW RECOVERY

Cryptocurrencies have staged a gradual recovery so far this year, after prices fell sharply last year and a series of bankruptcies at major crypto firms, including U.S. exchange FTX, left investors with heavy losses.

The collapse of FTX added momentum to global regulatory efforts at reining in the sector, especially to protect small investors lured by fast returns.

China has all but banned crypto. U.S. investigators raking over FTX have accused founder Sam Bankman-Fried of multibillion-dollar fraud, to which he has pleaded not guilty.

Alex Mashinsky, the founder of bankrupt crypto lender Celsius, was charged with fraud for misleading customers and artificially inflating the value of the company's token, according to a U.S. indictment unsealed on Thursday. He pleaded not guilty.

Mashinsky is the latest in a series of crypto moguls to be indicted. Meanwhile, Coinbase and bigger rival Binance face lawsuits, which they are contesting, from the SEC and in Binance's case from other regulators as well.

A top SEC official said last month the industry has "an ethos built around non-compliance".

Still, crypto investors have taken encouragement from the world's biggest asset manager, BlackRock, filing to launch a bitcoin exchange traded fund last month. Earlier in July exchange operator Cboe refreshed its filing for a similar fund to be run by asset manager Fidelity.

As a risk asset, cryptocurrencies could also stand to gain from a weaker dollar.

"We'd gone through this long period of just consistently negative news to make the space look pretty grimy," said Chris Weston, head of research at brokerage Pepperstone in Melbourne.

"For the first time in a while, it's been consistently positive news coming though and that means you've got momentum."

(Additional reporting by Vidya Ranganathan in Singapore; Editing by Simon Cameron-Moore and Alex Richardson)