With Ripple vs. SEC Still Far From a Verdict: Avoid XRP

Back in late December, when I last discussed XRP (XRP-USD), I took a cautious view on the crypto. In my article, I talked about how there was upside potential if its developer, Ripple Labs, beat the civil case filed against it by the Securities and Exchange Commission (SEC).

a ripple coin
Source: Shutterstock

But with the looming risk of a crypto bear market, I argued upside was limited. In the two months since, my argument has sort of played out. A crypto bear market did emerge. Cryptocurrencies, ranging from establishment names like Bitcoin (BTC-USD), Ethereum (ETH-USD), as well as other popular ones like XRP-USD, continued to slide in price.

In XRP’s case? Trading for around just under $1 per token on Dec. 23, today it changes hands for around 76 cents per token. However, the case of Ripple Labs vs. the SEC has carried on, and has not wrapped up just yet.

This crypto stands to spike in price, if its “moment of truth” with the SEC spat winds up favorable. The problem? A verdict in this case may only arrive far down the road. Given its limited appeal outside as a bet on its developer winning in the courts, crypto investors should continue sticking to the other altcoins.

XRP: What’s The Latest on Ripple vs. SEC?

I wouldn’t call it a lock that the SEC loses its case against Ripple Labs. But checking out recent headlines, Ripple clearly remains the favorite in this fight. Even as evidence has emerged that bolsters the regulatory agency’s case.

As my InvestorPlace colleague Will Ashworth discussed in a recent article, this evidence consists of legal memos, dating back to 2012, that suggest this crypto’s developer knew the sale of XRP was in a regulatory gray area, with regards to it being a unregistered securities offering.

A possible “smoking gun,” this development gives the SEC a better chance of winning. Still, that doesn’t change the fact most other developments in this have been in the defendant’s favor. This may explain why news of the legal memos has had only a moderate impact on the price of XRP-USD.

However, I wouldn’t get too into the details with this lawsuit. There may be an opportunity to trade it. Again though, the issue is that the “moment of truth” with it may only be far into the future. As a former SEC official argued in a recent interview, as the stakes run high for both sides in this case, there’s not a high chance it gets resolved (even via a settlement) by the end of this year.

Outside Bet on Lawsuit, Other Altcoins Make Better Buys

Like I’ve discussed in past coverage of XRP, outside of buying it as a bet that Ripple Labs prevails against the SEC, there’s little appeal in making it part of a cryptocurrency portfolio. At least, compared to other opportunities among altcoins.

This is mostly due to the limited use cases for this token. The main purpose for it is for cross-border payments. In contrast, high-utility cryptos, like Ethereum, along with “Ethereum killers” like Cardano (ADA-USD) and Solana (SOL-USD) could have far greater upside, as there are a lot more use cases for them when it comes to decentralized financial transactions.

Yes, in theory, this crypto could “disrupt” the incumbent SWIFT system. In turn, mass adoption of it could result in a big increase in its price. Yet with its $36.6 billion market capitalization, its use for one specific purpose may already be priced-in.

Therefore, with little out there pointing to XRP becoming as widely used in decentralized finance (DeFi) as the other major altcoins, there’s no reason to buy it. Especially not purely on the speculation that it does happen to expand into that market at some point in the future. Although Cardano and Solana are not without their respective risks, the developers behind both names are at work with well-defined plans that could eventually make them as widely used as ETH.

Bottom Line on XRP: Take a Pass on it

Right now, it’s far from clear whether the “crypto winter” will thaw out by spring. Or, if rising interest rates, combined with possible increased regulation by the U.S. and other governments, means the bear market in this asset class keeps on for several more months.

Having said that, I can see why you may want to place some recovery bets down today. Buying in now, while uncertainty runs high, could end up being a highly profitable move.

Even so, take a pass on XRP-USD, and go with other cryptos on your watchlist. Barring a sooner-than-expected end to the Ripple vs. SEC fight, other coins/tokens remain better opportunities.

On the date of publication, Thomas Niel held long positions in Bitcoin and Ethereum. He did not have (either directly or indirectly) any positions in any other securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.

Thomas Niel, contributor for InvestorPlace.com, has been writing single-stock analysis for web-based publications since 2016.


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