calendar: A concept token for XRP (XRP) with stacks of tokens in the background.

© Source: Shutterstock A concept token for XRP (XRP) with stacks of tokens in the background.

With a market capitalization of $48 billion, Ripple (CCC:XRP-USD) is currently the sixth-largest cryptocurrency. Yet, it is also the only leading token that has failed to fully recover from the crypto bear market of 2018.


A concept token for XRP (XRP) with stacks of tokens in the background.

© Provided by InvestorPlace A concept token for XRP (XRP) with stacks of tokens in the background.

For the past few years, cryptocurrency fans have regarded RippleNet as a revolutionary experiment disrupting the Society for Worldwide Interbank Financial Telecommunications (SWIFT) system.

SWIFT is a service for international money and security transfers utilized by a network of banks and financial intermediaries. With its XRP-USD digital coin, Ripple is developing a new paradigm for financial transactions.

Since its inception in 2012, XRP has gained more than 12,000%. The digital currency is up 320% year-to-date. It rallied around 70% during the second week of August. But since then, bears have had the upper hand and XRP is down about 20% over the past month. It currently hovers at $1.02, slightly above the psychological support level of $1.00.

XRP was trading at almost $2 in mid-April, yet the legal tussle between Ripple and the Securities and Exchange Commission (SEC) continued to restrain XRP’s price along with investor appetites. The legal troubles began in December 2020.

The SEC alleged that Ripple conducted an “unregistered, ongoing digital asset securities offering” with its XRP token sales. Consequently, XRP faced delistings across leading cryptocurrency exchanges, including Coinbase (NASDAQ:COIN) and Binance U.S., whose parent company is known for Binance Coin (CCC:BNB-USD).

Institutional investors have been hesitant to make big bets on XRP-USD in 2021. Instead, they seem content to wait for the conclusion of the SEC action. Ripple may have a lot going for it. Yet it currently seems to be stuck in a rut. So let’s look at why XRP looks like a speculative investment at best.

Where To Use Ripple

XRP is the native token of the XRP ledger, a blockchain developed in 2011 by developers David Schwartz, Arthur Britto and Jed McCaleb. XRP and Ripple operate as two distinct entities. While Ripple is a financial technology (fintech) company that develops global payment solutions, XRP is the native token used for transactions, remittances and online payments. The crypto serves as a bridge between hard-to-match fiat currencies, facilitating quick conversion between them.

Ripple runs RippleNet, a platform that incorporates payment solutions designed to enable free money flow via XRP over a public ledger. It essentially serves as a platform for payment settlement, currency exchange, and cross-border transactions. It takes only a few seconds for an XRP transaction to go through with negligible energy consumption and costs as little as 0.0001 XRP.

In 2021, Ripple pre-mined one hundred billion XRP tokens. It retained 80 billion tokens to fund future operations and development, while its founders divided the remaining XRP between them.

Hundreds of financial institutions are already using XRP to expedite transactions. Its most prominent users include Bank of America (NYSE:BAC) and American Express (NYSE:AXP). In addition, Ripple recently announced a partnership with SBI Remit, the largest money transfer service provider in Japan, to facilitate cross-border payments using its digital currency.

Headwinds Deter Institutional Adoption of XRP

Despite these positive developments, XRP has so far failed to handle large institutional capital flows, as Ripple faces severe competition from the SWIFT network. SWIFT dominates global wire transfers, processing almost 42 million transactions every day over 11,000 financial institutions.

In August, SWIFT launched its SWIFT Go service that allows businesses and customers to send money to one another in seconds. However, SWIFT messages will not be able to compete with XRP’s ultra-low fees.

Financial institutions are reluctant to use the altcoin until the dust settles with its SEC. Yet, the number of active XRP wallet addresses keeps growing. Retail traders are still using the digital coin despite recent delisting across several major exchanges. Regardless of the outcome, XRP’s market cap has grown large enough to enable Ripple to settle its SEC troubles while admitting no wrongdoing or even go ahead with litigation until the end.

Meanwhile, in late September, Ripple announced it’s “launching a fund for creators, marketplaces and brands to explore new use cases for nonfungible tokens, or NFTs, on its ledger.” And given the hype surrounding NFTs, Wall Street paid attention.

The Bottom Line on XRP-USD

Over the years, Ripple has proved its utility worldwide. I expect XRP to continue to gain traction in the long run, as its real-time settlement and low fees represent a significant catalyst for the crypto.

Management is also entering the world of NFTs. Therefore, we can expect new developments from Ripple that will likely please long-term investors.

Meanwhile, Ripple has so far coped well with the SEC lawsuit. Most analysts highlight it will likely win its lawsuit with the SEC based on its current defense. Such an outcome is expected to trigger a short-term rally in XRP.

However, even after the dust settles with the lawsuit, banks and businesses may refrain from using XRP for large transactions for some time to come. Therefore, XRP is poised to remain a speculative investment subject to wild swings in its price for the foreseeable future. Interested investors might consider buying the dips.

On the date of publication, Tezcan Gecgil did not have (either directly or indirectly) any positions in the securities mentioned in this article.

Tezcan Gecgil, Ph.D., has worked in investment management for over two decades in the U.S. and U.K. In addition to formal higher education in the field, she has also completed all three levels of the Chartered Market Technician (CMT) examination. Her passion is for options trading based on technical analysis of fundamentally strong companies. She especially enjoys setting up weekly covered calls for income generation.

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