Picked up $1,180 worth of XRP (CRYPTO: XRP) cryptocurrency in the spring of 2019. At the time, I believed that the token, also known as Ripple after the blockchain-based payment system that powers it, was on its way to a great future. Cryptocurrency services that allow cross-border fund transfers with low friction and extremely low transaction fees sounded like a great idea in the long run.
XRP and Ripple have seen some extreme fluctuations since then. Many investors are afraid of touching the token due to legal and regulatory challenges. But I’m keeping my modest investment in XRP, which has gained 270% in less than three years. Here’s why.
Leading cryptocurrency trading service Queen Piece (NASDAQ: currency) XRP trading operations were suspended in January 2021. The token is still making its way through the regulatory challenges that led to this event, and Ripple’s future as a solution for international remittances is on the horizon.
The XRP in my Coinbase account could find a new place in some other trading platform that supports the coin, or a digital wallet. Coinbase no longer allows customers to buy or sell the token directly, but it is a good idea to send your XRP to another digital wallet address. This includes sending payments in this currency to someone else’s wallet. However, there are some limits. For example, these transactions must include at least 22 XRP tokens, which comes to approximately $26 at the current exchange rate.
Coinbase was far from the only cryptocurrency exchange to limit or stop XRP trading when the Securities and Exchange Commission came along. In fact, I am not familiar with the exchange that allows XRP to be traded for US residents today. This uncomfortable status quo will likely remain until Ripple settles its differences with the Securities and Exchange Commission (SEC).
What is the problem?
The Securities and Exchange Commission (SEC) launched an investigation into Ripple Labs in December 2020, alleging that the organization and its executives collected $1.3 billion in XRP sales as unregistered collateral.
Ripple continues to fight the SEC action because they don’t believe they have broken any rules about securities trading. Instead, they argue that XRP is a digital asset akin to traditional currencies such as the US dollar, the euro, or the Japanese yen. It is just a fully digital version of the same concept, intended to act as a transaction settlement agent. In particular, XRP is designed to act as an intermediary in transactions between two different currencies in the real world. The rules of currency trading differ from the framework of buying and selling securities such as stocks and bonds.
In short, the SEC is trying to force a rulebook on Ripple’s business while favoring other Ripple Labs.
I am not a lawyer and the SEC’s lawsuit against Ripple is ongoing. It may be years before we see a final verdict. However, I don’t mind holding my XRP until the SEC drama hits that last page.
As you can see, this regulatory review will likely help the US government and other regulators around the world to solidify their regulatory standards for the crypto market as a whole. And if it turns out that coin-like tokens like XRP should fall under the strictest restrictions of trading securities similar to stocks, I might lose some money on my XRP investment.
However, if it looks like a coin, swims like a coin, and looks like a coin, it is likely that XRP will eventually comply with the rules of currency market trading. This is the end result I expect, based on what we’ve seen so far. XRP is a lot like a basic tool for settling transactions, not so much as if you were a part owner of Ripple Labs.
Even in its current state of paralysis, XRP is the sixth largest cryptocurrency by market capitalization, with a market capitalization of $55.5 billion. This amount should rise if Ripple reaches the end of its SEC struggle and goes back to running its business instead. There is a real demand for a cryptocurrency forex service that cannot afford the slow settlements and high fees for full-featured cryptocurrencies like Bitcoin.
For example, Ripple signed a cross-border payments deal with the company-to-business payments service Currencycloud in July. Three weeks later, the credit card giant Visa (NYSE: V) Currencycloud is obtained flat. I’m not saying this was Visa getting its hands on Ripple’s services and XRP tokens without sparking a lot of regulatory feathers, but this is one of the direct results of this $940 million deal.
Hold on now. I would probably buy more XRP if I could
XRP price plummeted when the SEC began, but investors gained confidence and the token price skyrocketed as the legal saga progressed. I’m not the only optimist here. So far, the untouched XRP token has gained a market value of $3,200 and I have reason to believe there is more to come.
Defining the regulatory framework will be beneficial for all cryptocurrencies in the long run, even if some legal provisions don’t get the details right. I am willing to take my chances to achieve a healthy end result, and accept a bumpy ride to the final destination.
So yeah, I’ll hold on to my XRP tokens until the bitter end – because the end might be too sweet after all.
This article represents the opinion of the author, who may disagree with the “official” recommendation position of the Motley Fool Premium Consulting Service. We are diverse! Asking about an investment thesis — even if it’s our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.