Ripple (CCC:XRP-USD) has an ongoing lawsuit with the Securities Exchange Commission (SEC) in the U.S., which is an important catalyst to monitor. The outcome of this lawsuit will determine whether the future of Ripple is bright or bleak.
The question the lawsuit seeks to address is whether Ripple’s XRP token is a currency or a security. The question you need to ask is whether it’s time to buy XRP, or if you should stay on the sidelines.
The SEC lawsuit is an extremely important factor, but it’s also important to look at the fundamentals of the token. We’ll examine both.
The SEC and Future Regulation
It’s hard to say what the outcome of the SEC lawsuit Ripple is facing will be, though it will likely take the form of a settlement. We don’t know everything yet, but what we do know for sure is that we can expect international regulations related to the financial system to become much stricter now and in the future. History shows this.
On June 5, news that the Group of Seven (G7) had agreed to a minimum global corporate tax rate of at least 15% made headlines:
“The United States, Britain and other large, rich nations reached a landmark deal on Saturday to squeeze more money out of multinational companies such as Amazon and Google and reduce their incentive to shift profits to low-tax offshore havens.
“Hundreds of billions of dollars could flow into the coffers of governments left cash-strapped by the COVID-19 pandemic after the Group of Seven (G7) advanced economies agreed to back a minimum global corporate tax rate of at least 15%.”
As with big tech companies, regulation and taxation are two huge considerations for the cryptocurrency world. And Ripple is no exception.
An important factor is the possible re-listing of XRP on major cryptocurrency exchanges. When news of the SEC lawsuit was made public, XRP was dropped by many exchanges.
Any new information in the Ripple lawsuit that comes out will probably cause significant movement for the altcoin, so expect increased volatility in the coming months.
But what is equally important to consider is that this battle between the established traditional financial system and the revolution of the decentralized crypto world will probably continue and even intensify in the future. And if the SEC decides, for example, that cryptocurrencies are illegal in the U.S., that would be a big hit for the market capitalization of the whole cryptocurrency industry, obviously including Ripple.
Ripple and Inflation
Let’s take a look at some factors other than the lawsuit. Besides speculation, what are some factors that could move the price of XRP?
Speaking to CNN Business, Brad Garlinghouse, CEO of Ripple said that the fervor for cryptocurrency is driven by those who see it as “an inflationary hedge.” He suggested that cryptocurrency had a role in solving payment problems.
I am not so confident that cryptocurrencies will be a hedge against inflation now or in the future, because they are very speculative assets with very high volatility. The inherent risk in investing in cryptos is too high to compensate for inflation in the U.S., for example, which is still relatively stable by comparison.
Ripple and Payments
However, the comment by Ripple’s CEO on its ability to solve payment problems indeed has plenty of value.
In my previous article about Ripple, I discussed several topics:
- Ripple’s SEC lawsuit and its need to prove its value
- Ripple’s “new era of finance”
- The SEC’s statements
- Whether Ripple is a currency or a security
As I concluded, “Ripple is an interesting case in the crypto industry. I like its business model and its utility. Ripple has a strong utility that adds value. But this does not mean that Ripple’s price is cheap after a 600% rally in 2021. It could move higher, but much lower too.”
The main advantage of Ripple today is that it has an established payments network, which it touts has “hundreds of financial institutions across 55+ countries worldwide.” Bank of America (NYSE:BAC) and American Express (NYSE:AXP) are among the large list of Ripple’s customers.
This established financial network is perhaps the largest asset Ripple has today. XRP was designed as a practical solution to business needs. Its purpose is to facilitate cross-border transactions that happen at an institutional level where speed is of paramount importance. Ripple and its XRP token offer faster confirmations for financial transactions on the blockchain than cryptocurrencies like Bitcoin (CCC:BTC-USD).
This does not mean that Ripple is perfect though. Far from it; it has its pros and cons.
Putting aside all the Ripple price predictions, as all of them are just educated guesses, will we ever see it reach anything like its 2018 high of $3.84?
I do not know that and I cannot answer this. In April, XRP’s price got as high as $1.97, and as of today, it is around 85 cents. Let me reiterate my verdict from my previous article: I see value in Ripple, but do not confuse value with true worth. It is very difficult to estimate the true or intrinsic value of cryptocurrencies. My opinion is to ignore any predictions. It could well be that XRP price could skyrocket, or it could tumble. We don’t know the most likely outcome.
But while XRP price’s is highly questionable in terms of its intrinsic value, the customer base that Ripple has built is significant and has room to grow. Global money transfers are a massive business sector that provide plenty of potential for Ripple to evolve and grow. It has a solid business model. But even for investors who know all the risks inherent in investing in cryptocurrencies, the most prudent choice now is to wait and see how the SEC lawsuit concludes. In advance of that result, any investment is too much of a gamble.
Never forget that cryptocurrencies are highly speculative assets. This includes XRP, even with its interesting business plans.
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.
Stavros Georgiadis is a CFA charter holder, an Equity Research Analyst, and an Economist. He focuses on U.S. stocks and has his own stock market blog at thestockmarketontheinternet.com/. He has written in the past various articles for other publications and can be reached on Twitter and on LinkedIn.