Cryptocurrency has gone through boom and bust cycles for years. XRP (Ripple) (XRP -0.91%) once soared as high as $2.78 before a 2018 crash decimated it. Had you bought $1,000 of XRP in early 2018, you’d have just $185 left today.
So why hasn’t XRP bounced back like Bitcoin and other cryptos have? The cryptocurrency’s creator, Ripple, is locked in a fierce lawsuit with the Securities and Exchange Commission (SEC) over its regulatory status.
XRP is still one of the largest cryptocurrencies today, and the pending litigation overshadowing the cryptocurrency makes it a potentially high-risk, high-reward investment idea.
Here is what you need to know.
What is XRP (Ripple)?
Ripple is a blockchain payment network that helps financial institutions settle cross-border transactions. Though most people refer to Ripple stock as a cryptocurrency, Ripple is technically the network, and XRP is the cryptocurrency itself. Ripple’s primary goal is to help money move more freely and quickly worldwide.
Cross-border transactions, where money is exchanged between countries, take multiple steps and can take one to four business days to settle through the traditional SWIFT system, which is how banks currently transfer most money internationally. Transactions on Ripple can settle in seconds. The XRP token acts like a shapeshifter, converting from currency A to XRP, then to currency B at the other end. The process, which is made possible by Ripple Labs’ network of bank partnerships around the world, is typically transparent to the sender and receiver.
Despite XRP not recovering from its peak six years ago, it remains a prominent cryptocurrency today with a $27.5 billion market cap, the sixth-largest. Why hasn’t XRP rebounded like many other cryptos? The SEC sued Ripple (the company) on allegations it had improperly sold its XRP tokens.
The SEC vs. Ripple, boiled down to what matters
The lawsuit, filed in late 2020, boiled down to whether XRP should be treated like a security, much like a company’s stock (which is highly regulated), or as a currency. Ripple scored a significant victory in July 2023 when the judge presiding over the case ruled that selling XRP on secondary markets like an exchange didn’t break the law.
However, it wasn’t a clean sweep. The company had also sold large amounts of XRP directly to institutional buyers, which the judge ruled to violate federal securities laws. Now the two parties are preparing for remedies, a post-ruling court process to determine Ripple’s punishment for selling to institutions.
The two sides are currently sparring over what evidence can be used in the remedy proceedings. That process has several key deadlines over the next several months, so more is still to come. Ultimately, the remedies could include fines for Ripple or court orders that impact the broader cryptocurrency industry.
Should investors buy Ripple today?
XRP nearly doubled on the July 2023 partial Ripple win. However, that price has steadily faded lower again because there’s still a lot of uncertainty about XRP and Ripple. There is no way of knowing what the ultimate remedies will look like until the litigation concludes, so that makes XRP a very speculative token to own right now despite its large market cap.
It’s probably fair to say that XRP could create multibagger returns if Ripple does well through the rest of its court battle. After all, XRP was trading as high as $2.78 back in early 2018. Years from now, XRP’s price will largely depend on how widely adopted Ripple is across the global banking landscape.
The lawsuit remains a wildcard. If you’re a risk taker, consider buying a small amount of XRP to capture the potential returns if Ripple wins big in court. You can always buy in heavier later once more clarity follows the remedy process.
Justin Pope has positions in Bitcoin. The Motley Fool has positions in and recommends Bitcoin and XRP. The Motley Fool has a disclosure policy.