Ripple (XRP-USD) has been a case study in the cryptocurrency market, but not a positive one. There is an ongoing SEC lawsuit that started in December 2020 “by suing the company and two of its top execs for allegedly issuing and selling unlicensed securities in the form of the XRP cryptocurrency.”
The SEC case against Ripple could end in 2023. To me this is a long time, and the shadow of the lawsuit can continue causing uncertainty in a year when the cryptocurrency market has been weak. I predict it could be facing even more selling pressure, as there is a risk-off investor mood caused by the tighter Federal Reserve monetary policy.
Is XRP crypto a good investment now, as it is down 50% in 2022 and has lost 30% in the past month? There is good news in Ripple, but I consider the bad news to be more important. Therefore, I do not think XRP at just under 40 cents has bottomed, nor that it is a buy.
Ripple Filing for an IPO? Why?
Ripple CEO Brad Garlinghouse told CNBC that it will “explore the possibility of an initial public offering once its lawsuit with the U.S. Securities and Exchange Commission has ended.”
I am trying to find out a rationale for this idea. First, the history of an SEC lawsuit is damaging the credibility of Ripple.
Second, going public is all about transparency, regulations and delivering results. Your fundamentals get scrutinized and you must adhere to rules such as timely and accurate reporting of financial performance. Ripple, by filing an IPO, will be considered a security. It calls into question the concept of decentralization, which is a cornerstone for cryptocurrencies.
What could Ripple achieve if it files for an IPO? Most probably the answer is raise tons of cash to grow. But would you trust a company with a recent SEC lawsuit? I would not.
XRP Has Important News
Ripple has announced a significant investment of $100 million in carbon trading. The goal is to reduce greenhouse gas emissions. This is an opportunity that has plenty of value and potential.
On the other hand, the focus on the NFT (non-fungible token) market, which Garlinghouse considers to be both undervalued and underhyped is a very risky business decision. Allocating $250 million to start the Creator fund to explore NFTs on the XRP Ledger is a very questionable business move. I believe the NFT market is full of irrational exuberance, ready to burst. I could start selling my own NFTs, pictures of me writing my articles for InvestorPlace valued at $50,000 each. I expect zero sales. This is the hard truth.
Why? The price requested is illogical. A $5 price tag may generate some sales. This huge difference is in my opinion the reality behind NFTs — they are way too overvalued.
Ripple CEO Expects Not Many Cryptocurrencies to Survive
The belief that not many cryptocurrencies will survive in the long -run, was expressed earlier by Ethereum (ETH-USD) co-founder Gavin Wood. That idea was supported by Garlinghouse.
This scenario poses a lot of challenges for XRP. First, if it materializes, XRP could be at large risk itself. Second, a trend that will show the majority of cryptocurrencies to disappear will probably create a wave of selling pressure on the cryptocurrency market, and XRP could move in tandem heading lower.
XRP faces quite some risks now. Avoid it as most factors are more negative than positive now.
On the date of publication, Stavros Georgiadis, CFA 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.