With the ongoing lawsuit, Ripple (CCC:XRP-USD) has remained significantly volatile. At the beginning of the year, XRP was trading at $0.22. With all cryptocurrencies surging, XRP touched a high of $1.84 in mid-April. The key point is that there was a big trading opportunity even amidst the lawsuit.
XRP has however corrected to current levels of 93 cents. This has little to do with the progress on the lawsuit. First and foremost, China announced that it has banned financial companies “from providing services related to cryptocurrency transactions.” This triggered a broad-based correction in the cryptocurrency space. Further, Elon Musk’s views on the environmental impact of Bitcoin (CCC:BTC-USD) mining also supported the downside in the crypto space.
At 93 cents, I believe that XRP is worth considering. While a big exposure to XRP can be avoided, the returns can be multi-fold on any potential end to the lawsuit. Let’s talk about the factors that support this bullish view on XRP.
Possibility of Settlement Before Trial
Attorney Jeremy Hogan, who has been closely following the case since the beginning had an interesting opinion. Jeremy points to the fact that “not even 10% of cases can be tried. Judges are always pressuring lawyers to settle because the truth is the system would collapse if more cases had to be tried. There simply aren’t enough resources.”
In the reply to Jeremy’s tweet, crypto enthusiast Stefan W. Huber points out the fact that “96% of all the SEC cases are settled before trial.”
It’s also worth noting that Ripple has not been defensive. They have rather been aggressive in terms of fighting the case against the SEC.
As an example, Ripple recently asked the SEC to disclose why the agency views XRP differently. As compared to Bitcoin or Ethereum (CCC:ETH-USD).
Further, from the perspective of Ripple, there are larger plans on the horizon. Ripple Labs CEO Brad Garlinghouse believes that the “likelihood that Ripple is a public company is very high at some point.”
This is unlikely without Ripple having cleared the SEC lawsuit. It might therefore be in the interest of both parties that a settlement is reached relatively sooner. Once that happens, I expect XRP to surge from current levels.
Another important point to note is that things have been robust for Ripple from a business perspective. Since the SEC lawsuit, Ripple has signed 15 new contracts with banks globally. The focus of growth has been in Asia and Japan where XRP is recognized as a currency.
In a scenario of no regulatory headwind, XRP would have been trending higher on these contracts. Therefore, once the SEC lawsuit is settled, there seems to be significant upside potential for the cryptocurrency.
SEC Chairman Gary Gensler recently opined that Bitcoin is a “speculative” store of value. Gensler further believes that the “the SEC should be technology neutral when it comes to innovations in markets.”
It seems that Gensler is open to innovation that come through the cryptocurrency space. However, the SEC Chairman is more worried on speculation and investor protection. At some point of time, cryptocurrencies are likely to be regulated. A complete ban seems unlikely.
The SEC lawsuit against Ripple is likely to be positive for the cryptocurrency space. Once the lawsuit ends, there will be more clarity from a regulatory perspective.
Overall, there seems to be more positives than concerns for Ripple. Of course, with regulatory headwinds, it’s risky to consider big exposure to the currency. However, I am bullish with a medium-term time horizon.
A settlement with the SEC and the potential for going public are the big upside triggers. Positive business developments for Ripple in emerging markets is also a positive. The entire cryptocurrency space being regulated is a potential risk.
On the date of publication, Faisal Humayun did not have (either directly or indirectly) any positions in any of the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
Faisal Humayun is a senior research analyst with 12 years of industry experience in the field of credit research, equity research and financial modelling. Faisal has authored over 1,500 stock specific articles with focus on the technology, energy and commodities sector.