Ripple is a payments settlement system and currency exchange network that can process transactions from all over the world. Not only can people use this network for transactions involving Ripple’s own proprietary digital token called “XRP,” but the exchange also works with other cryptocurrencies such as Bitcoin and even with commodities and precious metals like gold. Because of its strong use cases in the global financial services industry, Ripple and XRP are often referred to as the “cryptocurrency for banks.”
And many champions of digital coins and assets are excited about Ripple and XRP, with some predicting that they could eventually change banking as we know it today. However, before that happens, Ripple and its XRP digital token have to overcome some big obstacles in front of them.
While it is lumped in with the cryptocurrency market, Ripple refers to itself as a “fintech company” and says that the XRP digital coin is but one part of its business. XRP is currently listed as the fifth most valuable cryptocurrency with a value of $1.67.
The company itself was last valued at $10 billion and is backed by some notable names, including Japanese financial services giant SBI Holdings (OTCMKTS:SBHGF), Spanish bank Santander (NYSE:SAN)and many venture capital firms, including Lightspeed and The Founders Fund.
While Ripple and its supporters foresee big things in the future, the company is currently sidetracked by a legal battle with the Securities and Exchange Commission (SEC). The SEC filed charges against Ripple last December, alleging that Ripple co-founder Christian Larsen and company Chief Executive Officer Bradley Garlinghouse raised more than $1.3 billion through an unregistered, ongoing digital asset securities offering.
Ripple and its executives dispute the charges, saying in a written statement that “XRP is a currency, and does not have to be registered as an investment contract.”
The SEC dispute has cast a shadow over Ripple, one that is likely to linger until the fight is resolved in court. Executives at the company have threatened to relocate outside the U.S., to countries that do not view XRP as a security but rather as a currency. The company recently appointed Rosie Rios, the 43rd treasurer of the U.S., to its board of directors amid the ongoing SEC battle. Regardless of the outcome, the SEC charges do not seem to have negatively impacted the price of XRP, which has risen about 600% year-to-date.
The price of XRP has been popping lately, along with other cryptocurrencies like Dogecoin (CCC:DOGE-USD) and Ethereum. And while investors who hold XRP may not be complaining now, many people on Wall Street are sounding the alarm on a bubble forming in cryptocurrencies, one that could burst soon.
Some analysts claim that that XRP is likely caught in the crypto bubble, noting that the digital coin has seen its price rise as much as 30% in a single day. Investors who buy XRP now might be climbing onboard right before the ship sinks.
For its part, Ripple says it remains focused on further developing its global financial network and refining the XRP digital token. The company says its intention from the time it launched back in 2012 was to replace the “SWIFT” money transfer network that is widely used around the world to quickly and efficiently settle transactions between banks and financial institutions. Ripple hopes that its system and token will one day be even faster and more efficient.
Steer Clear Of XRP
Ripple is one of the more mature players in the cryptocurrency space right now.
The company has developed a cryptocurrency technology and coin that have real world applications and seek to improve financial transactions around the world. This application sets Ripple and the XRP coin apart from the thousands of other cryptocurrencies that have no real reason to exist. However, given Ripple’s ongoing fight with the SEC and the overheated cryptocurrency market, investors would be best to stay away from XRP for the time being. Let things cool off before buying in.
On the date of publication, Joel Baglole did not have (either directly or indirectly) any positions in the securities mentioned in this article.
Joel Baglole has been a business journalist for 20 years. He spent five years as a staff reporter at The Wall Street Journal, and has also written for The Washington Post and Toronto Star newspapers, as well as financial websites such as The Motley Fool and Investopedia.