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Should you buy Ripple (XRP) now while it is below $1?
Learn more about the reasons for and against buying this innovative cryptocurrency.
After a painful down year in 2022, the cryptocurrency market is back in investors’ good graces, as its valuation currently stands at $2.3 trillion (as of May 16). This is a considerable increase from approximately $800 billion at the beginning of 2023.
Even with the benefit of the bull run, Ripple (XRP -1.19%) did not gain much. The blockchain network’s payments-focused digital token, Bitcoin.
Is it time to buy XRP while it is still below $1? There are many factors to consider before reaching a conclusion.
Valuable use case
Ripple Labs, formerly known as OpenCoin, launched XRP back in 2012, so this is one of the first cryptocurrencies to hit the market. He’s even older than Ethereumintroduced in 2015.
The aim of this project was and still is to facilitate cross-border payments with a fast, economical and energy-efficient solution. Ripple works as a bridge currency that allows a money sender to convert from their home currency into XRP and make the transfer. The recipient can then convert XRP into their home currency.
Ripple has already partnered with numerous banks and financial institutions in an effort to gain wider adoption. The market for this is truly huge, as companies sent $23.5 trillion across borders in 2020, according to consultancy Oliver Wyman. Even if XRP could be used for a small slice of this activity, demand for the token could increase, leading to higher prices.
What Ripple is trying to do, which is trying to gain broad adoption with a real-world use case, is in stark contrast to most of the cryptocurrency industry. Almost all of the thousands of tokens available serve no purpose and this helps XRP stand out.
Too much uncertainty
This is where the bull case ends. An important wake-up call is the continued performance of Ripple battle with the Securities and Exchange Commission (SEC). The latest ruling states that selling tokens to institutional buyers violates laws, as XRP tokens can be seen as securities that have not been properly registered. The SEC is asking Ripple for sanctions and fines of $2 billion.
It’s never good when you’re in the crosshairs of the most powerful financial regulator there is. Whether you’re an expert in legal disputes like this, it’s nearly impossible to know how things will end. This regulatory uncertainty may be the sole reason why XRP will drop 18% in 2024 and sit 87% below its peak price.
I’d rather avoid it altogether. But if you’re interested in adding XRP to your portfolio, perhaps it’s best to wait until there are clear answers from the SEC. Then at least there will be some clarity.
I’m also not too confident in Ripple and XRP’s ability to gain much greater adoption in the long term. 12 years have already passed since its launch. What makes you think its usage will suddenly skyrocket in the years to come?
In other words, I think the total addressable market is significantly smaller than you might think, given the sheer size of the institutional cross-border payments business. The global banks and finance companies out there will not simply sit idle and give up a large revenue service to a small blockchain network that still faces technical and legal risks.
This is an innovative cryptocurrency. But investors should temper expectations. Owning XRP comes with a lot of risks, so it’s best to avoid buying it, even if it’s below $1.
Neil Patel and its clients have no position in any of the securities mentioned. The Motley Fool has positions and recommends Bitcoin, Ethereum and XRP. The Motley Fool has a disclosure policy.