Whither XRP, to Buy or Not to Buy?

By rumjus | Rumjus Crypto Discussions | 30 Aug 2023

XRP is a crypto currency / coin developed by Ripple Labs. It is by no means a new currency, the technology was released in 2012 and was intended to make international money transfers quicker, cheaper, easier, better and generally save the world. Transactions costs were going to be extra low (fractions of cents), the solution was said to be very scalable. On the flipside, it didn't rely on the traditional blockchain technology and used a consensus algorithm - somewhat surprisingly named RPCA (the Ripple Protocol Consensus Algorithm). It was going to take over from SWIFT and give them a, not to pun intentionally, a run for their money. To us uninitiated, it was sort of a "bridge currency" for international transactions.

If you take the market cap it is over US$25 Billion! As an aside, what is market cap? Market Cap or Market Capitalization is the "value" of all the coins in circulation. We multiply the number of total coins by the current price to get the market cap. Therefore, as the price keeps changing, the market cap follows the price change as well. But US $ 25 billion or thereabouts is more money than you can shake a stick at.

So far this looks like a gold mine, right? But before you run off and get yourself some of the XRP, specially since the price has come down recently, there is another side to Ripple XRP.

Enter the U.S. Securities and Exchange Commission (SEC). This august institution filed a lawsuit against Ripple Labs in December 2020, alleging that XRP is a security and that Ripple conducted an unregistered securities offering. This legal battle has raised regulatory concerns and could (and has) impact(ed) the short and long-term prospects of XRP. As the local wit noted, "First you have a perfectly good thing, like the stock market; but soon you get the derivatives which completely sully the landscape." Whether this actually happened, or more likely, stems from the complexities to do with derivative products (if anyone is interested I can list them) is arguable.

Suffice it to say that SEC claimed that XRP is a security (while Bitcoin isn't), and has taken Ripple to court. Now we need to do the "Howey test" (the name is derived from SEC vs. W.J. Howey Co. case) to determine if XRP is a security. It's a security if the investor has no control over the asset. You'd think that the SEC would have the sense to discuss this matter with Ripple and fine them or make them pay something to register as a security if they thought it was a security. No common sense seems to have prevailed, as Ripple claims that they were not consulted prior to the case, and that the SEC actually has ties with other platforms (I don't know this personally).

Ripple could shoot up if the case if favourably decided, like it did when a court found, partially, that it actually wasn't a security. But the SEC is government backed, and count on them, when they miss their goal, (and unlike the multitude of us who would grant the goal kick or a centre kick or a throw in) to try to move the goal post to where the ball passed and try to convince everyone that the ball would have hit the back of the new net, and hence they actually scored a goal.

To make a it short, the reasons for not buying XRP are:

  • Centralisation (with Ripple still holding large number of XRPs)
  • Competition (there are other currencies now that can save the world)
  • Market Perception (all this business with SEC hasn't put Ripple in a good light)
  • Regulatory risk (same as above but if it is seen as illegal, major exchanges could be required to delist it, possibly pushing the value to zero!)
  • Price volatility (I am clutching at straws here, but mention it for completeness, nearly every coin is subject to erratic volatility)
  • Technology (the original idea for ripple is from 2012 and it is possible that weaknesses may be present that are hard to address)

And the reasons for buying XRP are:

  • Lawsuit impact (it's lost value because of the lawsuit, but it has the potential to skyrocket)
  • Liquidity (despite the legal repercussions, a large number of trades take place daily)
  • Brand (the currency has established itself, and has recognition)

To sum up:
XRP's future as an investment option is uncertain due to its legal and regulatory challenges. For this reason, I would not advise you  to buy this token if you are even slightly risk averse. However, as someone who bought the currency before it's collapse, I hold a percentage of XRP in my portfolio, and would buy at lower prices to average out, and I am an ungrudging optimist. Again, you are responsibly and take all liability for your buying or selling decisions and the author or platform do not take any liability for your activities.

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