While Bitcoin (BTC) is in the headlines once again and with it the imagination of the investment community, the opposite is true for ripple (CCC:XRP).
Cryptocurrency has been in the news for the wrong reasons. In this case, Ripple Labs is being sued by the Securities and Exchange Commission (SEC) for allegedly selling more than $1 billion in registered tokens.
The problem is whether XRP is a currency or a security, and the more I read about this topic, the less clarity I get. Supporters on both sides hold strongly held views.
What I’m curious about is what exactly investors are trying to invest in? As a cryptocurrency, XRP has been, by design, a solid investment. This is in contrast to Bitcoin which remains volatile. But as a payment provider, Ripple, and by extension XRP, has a more compelling story.
what’s in a name?
Before I go any further, it is important to understand the difference between Ripple Labs and XRP. Ripple Labs is a cryptocurrency platform, not a currency. XRP is a coin used by the Ripple platform. Colloquially, Ripple and XRP are used synonymously.
However, Ripple does its best to refer to XRP as an “independent digital asset.” Although the company uses digital currency on its platform, Ripple insists that it has no control over the technology.
And yes, in this case the semantics are important. In fact, they may decide the lawsuit.
Ripple is the solution to a common problem
Peer-to-peer money transfer has revolutionized the banking system. But sending money around the world can be expensive and ineffective.
In addition to the fees charged for currency conversion, it can sometimes take several business days for the funds to reach the destination account.
Ripple offers a solution to this problem through its platform. Customers can use Ripple to send large amounts of money quickly and securely at little cost. Ripple counts many banks and payment service providers as customers.
This is where the story gets more complicated. Ripple uses XRP to facilitate these transactions. Currency.com describes XRP as follows, “As a currency, XRP acts as a neutral asset that can represent anything.”
Identity error case?
My initial conclusion from the ongoing lawsuit is that Ripple appears to be playing a bit too fast and loose with its relationship to XRP. The crux of the SEC’s argument is that XRP is a stock, not a cryptocurrency. As such, it can be regulated.
This is where things get muddy, at least for me. XRP is a cryptocurrency, but it is not necessarily recognized by the broader crypto community. It lacks some important features of Bitcoin and Ethereum, such as the mining process.
However, debating cryptocurrency proponents about whether something is a coin is like debating whether Die Hard is a Christmas movie (not by the way). It makes it fun albeit meaningless discussion. Arguing what is “really” does not change the fact that XRP is largely recognized as a currency.
And that’s not really the problem, it’s whether or not the company made XRP. To help you answer this question, I’ll encourage you to read Josh Enomoto’s perspective on the lawsuit.
In this article, Enomoto writes, “The point the regulatory agency makes is not about so-called security. Again, if it meets securities standards, then it is subject to the jurisdiction of the Securities and Exchange Commission.”
Should you invest in Ripple?
As a cryptocurrency game, XRP doesn’t do much to my excitement. After all, the basic premise behind cryptocurrency is to create a store of value independent of gold. XRP is not set up to deliver that kind of growth.
Ripple Labs is not a public company. If so, I find it a very interesting investment. As it stands now, it appears that investors are buying the coin due to the platform that facilitates it. But since the coin acts as a neutral asset, this is not a compelling investment for me.
At the date of publication, Chris Marcoch did not (directly or indirectly) hold any positions in the securities mentioned in this article.
Chris Markuch is a freelance financial copywriter who has been covering the market for seven years. He has been writing for Investor Place since 2019.