Ripple (CCC:XRP-USD) wants to build a niche cryptocurrency platform focused on cross-border money transfers. This is all well and good as far as that goes, but it’s a big downgrade from Ripple’s aspirations in 2018 when XRP soared and appeared to be one of the top-tier projects in the crypto ecosystem.
Since then, however, Ripple has struggled to bring its vision to fruition.
Meanwhile, the big innovations that have happened in cryptocurrency have largely occurred in other fields such as decentralized finance (DeFi).
Ripple’s platform doesn’t have the same sort of architecture that would naturally take to this sort of emergent technology.
There is potentially still a lot of value in Ripple if it can get the cross-border payments right. However, it’s not hard to see why XRP has disappointed investors in recent years.
It’s important to highlight all this from the top. Many people are focused on Ripple’s ongoing legal dispute with the Securities and Exchange Commission (SEC). And yes, it’s a big deal that the SEC is involved.
According to the SEC, Ripple is a security — and by contrast, not a currency — and thus falls under SEC scrutiny. As follows from that, the SEC alleges that Ripple has failed to comply with securities law.
This could derail Ripple depending on how things go. However, don’t be under the mistaken impression that Ripple’s price weakness is just due to the SEC.
Other big cryptos such as Tether and associated broker Bitfinex have run into massive problems with regulators but still have widespread support in the crypto community.
Ripple’s problems are largely from a failure to execute, combined with a gigantic market capitalization that limits upside.
Ripple Has a Huge Valuation
It’s easy to think that Ripple has a ton of upside due to its low price. After all, it only costs 60 cents or so per token. That’s cheap, right? But, there’s a catch. Ripple has an absolutely gigantic number of outstanding tokens. 100 billion, to be precise.
This means that the market capitalization on Ripple is almost $60 billion, despite optically seeming like a cheap token.
Back in 2018, when Ripple briefly hit $4, it made its founders a massive sum. Based on then-prevailing market prices, Ripple cofounder Chris Larsen was the world’s fifth-richest person at Ripple’s peak.
This is simply incredible for a cryptocurrency that has achieved so little in terms of real-world adoption.
It goes to show that in a coin with a highly-concentrated ownership structure, insiders can amass tremendous wealth even if the price of tokens remains at a seemingly low level.
Ripple Has Drastically Underperformed
As noted above, XRP hit $4 in 2018. It’s now at just around 70 cents. This is a dismal record.
Bitcoin (CCC:BTC-USD), for example, topped out at $20,000 in 2018 but peaked at more than $60,000 on this latest bull run. Ethereum (CCC:ETH-USD) previously topped at $1,400 in 2018 and hit $4,000 this year.
Other cryptocurrencies with more promising development teams and technology, such as Cardano (CCC:ADA-USD) significantly exceeded their 2018 highs as well.
Ripple has failed to keep up because the broad use case simply isn’t there. Ripple’s backers have repeatedly made grand claims about the currency’s plans and partnerships to disrupt the banking system.
However, at its core, it doesn’t seem to make a lot of sense replacing a bank’s existing payments technology with a public blockchain that could expose a client’s transactions to worldwide scrutiny.
XRP has two problems now. One, it’s a cryptocurrency that has always offered more potential than actual results as far as the technology goes. And two, cryptocurrency is in a steep bear market.
Sure, the bleeding has slowed down a bit, but the likes of Bitcoin and Ethereum are way down from where they were a few months ago. So far, the rallies we’ve seen since then have been modest and fleeting.
With Bitcoin and Ethereum struggling, it’s hard to see the path forward for Ripple here. This is even before accounting for the SEC risk.
Given Ripple’s lack of major technical achievements or market adoption, you need faith in the story to want to buy Ripple specifically. But with confidence in the crypto ecosystem as a whole a bit shaken, now isn’t the time to be taking a flier on a second-tier option.
Perhaps XRP will have another big rally, but this doesn’t seem like an opportune time to get involved.
On the date of publication, Ian Bezek did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
Ian Bezek has written more than 1,000 articles for InvestorPlace.com and Seeking Alpha. He also worked as a Junior Analyst for Kerrisdale Capital, a $300 million New York City-based hedge fund. You can reach him on Twitter at @irbezek.