Considering All Factors, Stay Away from Ripple
InvestorPlace - Stock Market News, Stock Advice & Trading Tips Between sell the news risk, lower utility and market-wide risk, there's little reas...
The courtroom battle continues for Ripple, developer of the XRP (CCC:XRP-USD) cryptocurrency.
This battle with the Securities and Exchange Commission may take many more months to finally wrap up. But as the odds remain on Ripple’s side that it will successfully fight allegations that the issuance of its crypto constituted a securities offering, there is always a chance that a decision with this case will sink it.
So, should you buy it now, with Ripple around 93 cents, ahead of it beating the case? Not so fast. It still doesn’t seem to be a worthwhile move.
As I discussed on Sept. 13, there still is a high “sell the news” risk here. Retail traders have bought the rumor that Ripple will prevail in court. Once it does, they’ll sell the news, which will send XRP back to lower prices.
Add in market-wide risks for crypto in general, and there’s little reason to dive in today.
Ripple: It’s Too Late to Buy The Rumor
So far this year, the bull case for XRP has been built around its high chances of beating the above-mentioned SEC case. Much of this is already priced in, as retail traders have already placed their bets. But if Ripple wins in court, putting its regulatory headwinds behind it, institutional money could flow back in.
In theory, this could play out for Ripple. Even among cryptos, very little of it is currently held by the smart money. As my InvestorPlace colleague Will Ashworth recently discussed, while institutions own around 8% of outstanding Bitcoin (CCC:BTC-USD), and around 5.1% of outstanding Ethereum, they hold just 0.2% of outstanding XRP-USD.
A sudden inflow of institutional money could propel Ripple in a big way. However, while this is a possibility, I wouldn’t buy this crypto now on the assumption it’s a certainty.
Why? It’s still behind in terms of utility, despite recent remarks to the contrary. With this, it’s questionable whether asset managers will dive into it with full force in the event it beats the SEC.
This points to my past view being the one that plays out. Retail traders “selling the news” will push it lower once Judge Sarah Netburn makes her judgement.
XRP Utility Still Lacking
Along with the SEC drama, Ripple has been making headlines lately due to another development. That would be remarks made by a former government official who sits on the board of the cryptocurrency’s developer.
Rosie Rios, who served as U.S. Treasurer during the Obama years, joined the Ripple Labs board in May. In a recent tweet, she made the case for XRP at the expense of its crypto rivals:
XRP’s primary purpose is facilitating cross border payments while other #Cryptos find their value in speculation. China’s latest move brings this point home.
Rios later clarified her take with another tweet, stating that while she believes its cross-border payments are its main use case, developers are at work developing its capabilities in other areas. However, while developers may be at work to give Ripple greater functionality, my take of its utility still stands. Many altcoins are already well ahead of Ripple, and stand to leave it further behind.
For example, Ethereum recently leveled up with its London Hard Fork. Plus, it’s working on its “2.0” upgrades which could further cement its lead as the crypto most dominant in the world of DeFi. Then, there’s Cardano with its Alonzo smart contract upgrade. Solana (CCC:SOL-USD), a dark horse contender for the DeFi crown, has advantages such as transaction speed that could make it a crypto with greater functionality.
Rio’s commentary notwithstanding, Ripple has a lot of work to do before its native token is in the same category.
The Bottom Line
It’s debatable whether institutional money will flow into XRP-USD once its regulatory troubles are in the rearview mirror. This may mean bad news for its price once a judgement is reached. Retail speculators could wind up cashing out to a small pool of buyers.
On top of this is the risk crypto as a whole sinks further, whether due to China’s crackdown and increased U.S. regulation. Or investors may go from a risk-on to a risk-off mindset. With much not in its favor, your best move with Ripple is to hold off buying it for now.
On the date of publication, Thomas Niel held long positions in Bitcoin and Ethereum. He did not have (either directly or indirectly) any positions in any other securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
Thomas Niel, contributor for InvestorPlace.com, has been writing single-stock analysis for web-based publications since 2016.
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