Bitcoin
Should you buy Ripple (XRP) right now even though it is below $1?
Learn more about the reasons for and against purchasing this innovative crypto.
After a painful year of decline in 2022, the cryptocurrency market is back in the good graces of investors as its valuation currently stands at $2.3 trillion (as of May 16). This represents a considerable increase from around US$800 billion at the beginning of 2023.
Even with the benefit of the bull run, Curling (XRP -1.03%) didn’t gain much. The blockchain network’s payments-focused digital token, XRP, is up just 17% over the past 12 months, seriously lagging QRP’s 140% gain. 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. It is even older than Ethereumwhich was introduced in 2015.
The aim of this project was and still is to facilitate cross-border payments with a fast, cheap and energy-efficient solution. Ripple works as a bridge currency that allows the sender of money to convert from their local currency to XRP and make the transfer. The receiver can then convert XRP into their local currency.
Ripple has already partnered with several banks and financial institutions in an effort to achieve wider adoption. The market for this is truly enormous, as $23.5 billion was sent by companies across borders in 2020, according to consulting firm Oliver Wyman. Even if XRP could be used for a small slice of this activity, demand for the token could skyrocket, leading to higher prices.
What Ripple is trying to do, namely trying to achieve widespread adoption with a real-world use case, stands in stark contrast to most of the cryptocurrency industry. Almost all of the thousands of tokens in existence are useless, and this helps XRP stand out.
A lot of uncertainty
That’s where the optimistic case ends. A big red flag is the continuous battle with the Securities and Exchange Commission (SEC). The latest ruling said selling tokens to institutional buyers violated laws as XRP tokens could be seen as securities that were not properly registered. The SEC is seeking $2 billion in penalties and fines from Ripple.
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 play out. This regulatory uncertainty may be the only reason why XRP fell 18% in 2024 and was 87% below its peak price.
I’d rather avoid that altogether. But if you’re interested in adding XRP to your portfolio, it might be best to wait until there are clear answers from the SEC. Then at least there will be some clarity.
Additionally, I’m not very confident in Ripple and XRP’s ability to achieve much greater adoption in the long term. It has been 12 years since its launch. What makes us think its use will suddenly skyrocket in the coming years?
In other words, I think the total addressable market is significantly smaller than one might think, given the enormous size of institutional cross-border payments activity. Global banks and financial companies will not simply stand by and give up a large profitable service for a small blockchain network that still faces technical and legal risks.
This is an innovative cryptocurrency. But investors should temper expectations. There is a lot of risk in owning XRP, so it is best to avoid buying it, even if it is below $1.
Neil Patel and its clients do not have a position in any of the stocks mentioned. The Motley Fool has positions and recommends Bitcoin, Ethereum and XRP. The Motley Fool has a disclosure policy.