The new interest of institutional investors in cryptocurrency was one of the major investment themes released in 2020. Bitcoin (CCC:BTCThe price has gone up over 300% over the past year and over 60% in the last month. ripple (CCC:XRP) It was a different story.
While Bitcoin has seen sporadic price drops, the bigger look remains the same. However, if you avoid taking risks, you should stay away from Ripple.
A month ago, XRP was the third largest cryptocurrency by market capitalization. It has collapsed in half since December 22 mostly due to news that the Securities and Exchange Commission is charging fees Ripple Labs, which develops the payment protocol and exchange network of the same name, by conducting a $1.3 billion unregistered securities offering when it began selling XRP in 2013.
XRP continued its decline after that Queen Piece It has become the latest US cryptocurrency exchange to remove the world’s fifth-largest currency in the wake of a Securities and Exchange Commission lawsuit. At this point, expect digital assets to continue to lose steam going forward. Return is not in sight.
scorched earth ripple
Volatility is nothing new to cryptocurrencies. However, in the past year we have seen unprecedented interest as large financial institutions are finally starting to engage with it. At the same time, PayPal (NASDAQ:PYPL) And Square (New York Stock Exchange:mintIt now allows users to buy, sell and hold cryptocurrency. With the PayPal app, you can choose to buy Bitcoin, Ethereum, Bitcoin Cash, and Litecoin.
Thus, it is not surprising that Ripple rebounded late last year, rising to a two-year high of 79 cents, the highest level since May 10, 2018. However, the SEC lawsuit against Ripple Labs led to the collapse of XRP. The federal agency alleges that Ripple raised more than $1.4 billion by selling XRP without first registering it as collateral.
Regardless of the outcome of the lawsuit, cryptocurrency exchange Crypto.com And OKCoin He joined Coinbase in suspending the trading of the XRP token when the news broke. Phil Liu, Chief Legal Officer of Arca, the coin said, “One foot in the grave.”
I think this is a bit extreme. Whatever your thoughts on the future of Ripple, XRP exists independently of the company, in a distributed ledger. The XRP ledger is an open source and permissionless blockchain technology that can settle transactions within 3-5 seconds. It can settle 1500 transactions per second and work continuously. In comparison, ETC can handle about 15 transactions per second, and BTC can handle 3-6. The benefit of XRP is too valuable to take away.
There are also billions at stake here. The agency has been warned that investors could lose billions, given the “size of the SEC’s enforcement action” against XRP. Unfortunately, Ripple has used a bold strategy; So far, CEO Brad Garlinghouse has said that the Securities and Exchange Commission has “voted to attack cryptocurrencies.” Time will tell what happens with the case. But Ripple is a potential “too big to fail” case study.
Bitcoin remains the best bet
Unlike its competitors, XRP is trading at multi-year lows. The chances of a bounce back are slim at the moment. I agree with InvestorThomas Neal that in the event that you desire exposure to cryptocurrencies, Bitcoin remains your best bet at the moment. Institutional interest in it is very high, with both PayPal and Square supporting it on their platforms. And even there, you have to be restrained.
Earlier this month, Bitcoin plunged as much as 21% in a two-day period to $32,389, wiping out nearly $140 billion from the total market capitalization. Bitcoin’s rally represented an embrace of risk in stimulus-filled financial markets. Dollar weakness, economic optimism, and higher institutional interest will continue to drive the cryptocurrency higher. But that does not mean that there will be no peaks and valleys as we go forward.
Investors should keep an eye on updates on the issue but avoid Ripple for the time being. Investing any amount of capital in it means that you are comfortable with giving up that amount.
Even after the smoke clears from the SEC investigation, it will be a long time before Ripple becomes a viable digital asset again. As we’ve seen in the case of Luckin stock, a major scandal looms over your operations even if you are on your way to recovery.
At the date of publication, Faizan Farooque did not (directly or indirectly) hold any positions in the securities mentioned in this article.
Faizan Farooq is a contributing author for InvestorPlace.com and several other financial websites. Faizan has several years of experience in stock market analysis and was previously a data journalist for S&P Global Market Intelligence. His passion is to help the average investor make informed decisions about his investment portfolio.