As the SEC Controversy Continues, Stay Away From Ripple

Enthusiasm for cryptocurrencies may on the rise again. But, it’s far from enough to save Ripple (CCC:XRP).

Coin cryptocurrency ripple on the background of a stack of coins

Source: Shutterstock

Cratering late last month on news the cryptocurrency and its developer, Ripple Labs, were in the crosshairs of regulators, it’s yet to have recovered. Even as bitcoin (CCC:BTC) and Ethereum (CCC:ETH) surge to new highs.

However, don’t view this as an opportunity to buy this altcoin on the cheap. The rising tide of bitcoin prices will do little to raise its boat. But, that’s not all. Once Ripple is knocked off Coinbase, expect prices to continue heading lower.

So, what’s the verdict, as the altcoin trades for around 23 cents? Stay away. But, while I prefer the other cryptos, it’s wise to remain cautious as this asset class remains hot. Even as institutional investors warm up to bitcoin as a hedge against a declining dollar.

That’s not to say you should completely avoid this asset class. I personally hold a small position in bitcoin, and intend to remain a “HODLer.” But, given cryptocurrencies could crash again as they did in 2018, caution remains the best approach.

The Rising Tide of Bitcoin Can’t Save Ripple

Simply put, don’t view the discrepancy between the epic rise of bitcoin, Ethereum, and Litecoin (CCC:LTC), and the continued weak performance of XRP (Ripple) as a mistake. Cryptocurrencies may be more a wild west market than equities. But, Mr. Crypto Market knows what it’s doing.

And, it’s pricing this underperforming crypto appropriately. Why? Mainly, because of the Securities and Exchange Commission (SEC) investigation. In short, the SEC alleges the ongoing sale of XRP constitutes an unregistered securities offering.

Why is Ripple considered an “unregistered security,” while bitcoin and the other altcoins are not? InvestorPlace’s Josh Enomoto broke it down on Jan 5. Putting it simply, while other major cryptos are created via mining (open sourced), that isn’t the case with this crypto.

Instead, the developer controls the supply. Not fully decentralized, this factor leaves XRP vulnerable to securities law scrutiny. Given the investigation has just started, it’s still too early to tell whether the SEC effectively “cancels” the altcoin, or simply penalizes its developer.

But, no matter the SEC’s final action, don’t buy hard-hit Ripple in the hopes it pulls off an epic rebound. Coinbase is removing it from their platform. As other exchanges follow suit, XRP’s days as a major altcoin are numbered.

The Upcoming Coinbase Suspension and XRP Stock

Besides the SEC investigation, the upcoming Coinbase suspension is another bearish factor for Ripple. Enomoto touched on this in his recent write-up as well, referencing a Bloomberg article detailing the exchange’s recent announcement that it’s suspending the sale of XRP on its platform due to related litigation.

Already limiting trading late last month, Coinbase plans to completely suspend XRP from its platform on Jan 19. How bad is this for future price action? If trading in it suspends on other platforms, expect prices to continue tumbling.

While its been large investors fueling the recent crypto bubble, retail investors still make a difference. And, if retail investors can’t readily buy it, demand will continue to plummet.

In short, there’s little reason to dabble in Ripple at today’s prices. The regulatory scrutiny still needs to play out. Yet, Coinbase’s recent actions have already effectively “canceled” XRP. With this in mind, those looking for exposure to crypto should stick to the bitcoin, Ethereum, and Litecoin. And, stay far away from this fading altcoin.

That being said, investors overall should be careful if they have yet to enter the crpyto market. While there’s a clear long-term bull case for bitcoin, this asset class is clearly in the midst of a bubble.

Sure, “this time it’s different,” with institutional rather than retail investors driving it. But, that doesn’t guarantee this volatile asset class doesn’t crash a second time.

Bottom Line: Tread Carefully With Cryptos and Avoid XRP

While the verdict with the SEC investigation remains far away, the verdict on Ripple the cryptocurrency is clear: avoid. Yet, as I mentioned above, that doesn’t mean you should chase the upward momentum in bitcoin, Ethereum, and Litecoin.

There may some rationale to JP Morgan’s very bullish $146,000 price target for bitcoin. Institutional investors continue to warm up to bitcoin. As CNBC reported Dec 18, it’s been large bitcoin buyers, not retail investors, that have been behind the recent rally.

Yet, the smart money moving in doesn’t mean this asset class is immune from another 2018-style crypto crash. Be careful. I plan to continue holding my position in bitcoin. But, given the high volatility in cryptos, it’s best to remain cautious, and not bet the ranch.

Bottom line: If you have crypto exposure, maintain your current positions. If you want exposure, cautiously buy high-quality names like bitcoin, but above all stay away from Ripple.

On the date of publication, Thomas Niel held a long position in bitcoin.

Thomas Niel, a contributor to InvestorPlace, has written single stock analysis since 2016.


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