Expect More Volatility in Ripple Before XRP Reaches New Highs

Ripple (CCC:XRP-USD) has had a strong 2021 so far, as the price of XRP is up about 352%. Its followers have been cheering these recent gains, especially given the legal woes it is still facing. In 2020, the U.S. Securities and Exchange Commission (SEC) alleged that XRP tokens were unregistered securities and that Ripple had broken the law by offering them to U.S. investors.

Coin cryptocurrency ripple on the background of a stack of coins
Source: Shutterstock

On the other hand, Ripple says it is a currency and not a security. If Ripple’s argument is accepted at the court, then XRP investors will be able take a deep breath. Although the legal battle is far from over, the early indication is that Ripple might indeed be accepted as a currency. Nonetheless, due to the controversy, most cryptocurrency exchanges have excluded XRP, adding to the price volatility.

Followers regard Ripple as both a platform and a token. RippleNet is a global decentralized network, connecting a diverse ecosystem of payments players. XRP is the native token of the Ripple protocol. Using blockchain technology, RippleNet operates a platform allowing individuals to transfer money from bank account to bank account, person to person.

Now investors wonder what might be next for Ripple. Investing in XRP at this point is a risky proposition. However, long-term investors whose risk/return profiles allow for buying cryptos could consider investing in Ripple, especially if the price goes below $1.

Cryptos and Tokens Are Hot

The past year has seen a number of investing trends dominate headlines. Given the rock-bottom interest rates and increased fears of inflation, the popularity of commodities as well as alternative assets, including cryptos and tokens like Ripple, have surged.

“The policy uncertainty, market volatility and change in investor confidence in the financial system, coupled with recent developments in blockchain technology has led to the invent of, and (very quickly) increasing demand for, cryptocurrencies,” according to recent academic work published in the Journal of Risk and Financial Management.

While Bitcoin (CCC:BTC-USD) remains the largest cryptocurrency, the second-largest digital asset Ethereum (CCC:ETH-USD) is also gaining significant interest. Market capitalizations for Bitcoin and Ethereum are currently around $926 billion and $266 billion, respectively. By comparison, Ripple’s market cap is $49 billion.

Meanwhile, a number of companies like Tesla (NASDAQ:TSLA), Square (NYSE:SQ) and PayPal (NASDAQ:PYPL) have given support to cryptocurrencies. Also, earlier in April, the largest U.S. cryptocurrency brokerage Coinbase (NASDAQ:COIN) went public via direct listing. For many retail investors, it provides a relatively easy exposure to the crypto world. The current market cap of COIN is around $60 billion. Furthermore, its revenue, and thus share price, are closely linked to crypto trading volumes.

In recent weeks, Ripple tokens saw prices soar, despite the ongoing lawsuit. The media hype around COIN boosted XRP’s value from 61 cents on April 1 to $1.96 on April 13. But Ripple took a nosedive afterward, declining 6% on the first day of the Coinbase listing and falling steadily toward the current price around $1.10.

Meanwhile, away from the daily choppiness, long-term followers of Ripple are hoping that it will gradually replace SWIFT, the current standard for international bank wires. Dozens of financial institutions utilize the Ripple network, adding to the long-term investment thesis once the current legal battle is over.  

The Bottom Line on Ripple

As digital currencies become more accepted, I expect the growth of cryptos and tokens like Ripple to continue. However, as long as the legal worries continue, it might be hard for XRP to reach new highs. In fact, given the recent run-up in price, the next few weeks could possibly see further profit-taking in Ripple.

XRP’s price chart indeed reveals that daily swings are wide. Furthermore, the direction of the next move usually surprises investors. Therefore, short-term Ripple traders should be cautious. If you are an investors with a two-year to three-year horizon, you could consider having a small exposure below $1. If RippleNet increases its partnership with global financial institutions, it is likely to continue creating value for XRP investors.

Finally, those market participants who do not want to experience the daily choppiness in Ripple could consider investing in exchange-traded funds (ETFs) that give exposure to the cryptocurrency and blockchain, the technology behind these digital assets.

Such ETFs include the Amplify Transformational Data Sharing ETF (NYSEARCA:BLOK), the ARK Next Generation Internet ETF (NYSEARCA:ARKW), the First Trust Indxx Innovative Transaction & Process ETF (NASDAQ:LEGR), the Goldman Sachs Innovate Equity ETF (NYSEARCA:GINN), the Grayscale Bitcoin Trust (OTCMKTS:GBTC), the Grayscale Ethereum Classic Trust (OTCMKTS:ETCG), the Innovation Shares NextGen Protocol ETF (NYSEARCA:KOIN) and the Siren Nasdaq NexGen Economy ETF (NASDAQ:BLCN).

On the date of publication, Tezcan Gecgil did not have (either directly or indirectly) any positions in the securities mentioned in this article.

Tezcan Gecgil has worked in investment management for over two decades in the U.S. and U.K. In addition to formal higher education in the field, she has also completed all 3 levels of the Chartered Market Technician (CMT) examination. Her passion is for options trading based on technical analysis of fundamentally strong companies. She especially enjoys setting up weekly covered calls for income generation. 

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