Learning about cryptocurrency investments is like learning a new language, even for seasoned investors. Most have heard of the two largest cryptos, Bitcoin and Ethereum, but many others don't have the same recognition.
XRP (XRP +3.07%), the fifth-largest cryptocurrency, with a market cap nearly $53 billion, is one you may have heard of, but perhaps not for good reasons. The token continues to perform well, up about 410% this year and 349% over the past year, but there are two current developments regarding XRP that may impact its growth that you should be aware of.
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1. The company that uses XRP is being sued by the SEC
XRP is used by a company called Ripple, which runs a platform for currency exchange and cross-border transactions called RippleNet. In 2019, Ripple bought a 30% stake in the money transfer company MoneyGram International in what was to be a two-year partnership. Ripple would become MoneyGram's partner for cross-border payment and foreign exchange settlement using digital assets.
But the partnership ended this past March before the two years were up. A few months before that, in December 2020, the Securities and Exchange Commission charged Ripple with raising over $1.3 billion through an unregistered securities offering using digital assets, namely XRP. Neither company said the suit had anything to do with the ending of their partnership, but MoneyGram officials did say they stopped transacting on the Ripple platform after the lawsuit was announced.
Almost a year later, the suit is ongoing. Ripple has argued that XRP is a virtual currency, like Bitcoin and Ether, and not an asset, so the complaint would not apply. The suit has had its ups and downs for Ripple. Back in March, a judge in the case made comments indicating that she agrees, at least in part, with Ripple's argument that XRP is currency. But just this past week, the court ruled against allowing XRP holders to testify on behalf of Ripple.
Incidentally, when Ripple and MoneyGram parted ways, both said the door was open to rekindling the partnership. But that now seems unlikely as MoneyGram just last week announced a similar deal with one of XRP's rivals, Stellar.
2. A competitor has emerged in SWIFT Go
The RippleNet platform was developed as an alternative to the network that most banks use for cross-border transactions, SWIFT (or the Society for Worldwide Interbank Financial Telecommunications). The XRP token was used on the platform for on-demand liquidity, allowing settlement in mere seconds for as little as 0.00001 XRP for international transactions. This sought to provide banks with a cheaper, faster alternative, as SWIFT took anywhere from 30 minutes to a day, or longer, to conduct transactions.
SWIFT is the dominant source of cross-border transactions, used by more than 11,000 financial institutions representing more than 4 billion accounts in more than 200 countries. But RippleNet, with the help of the XRP token, has made an impact, with more than 300 financial institutions in at least 45 countries signing on to use the platform.
But just this past July, SWIFT launched a new service called SWIFT Go to compete with Ripple for faster transactions. Like RippleNet, it offers near-instant transactions for low-value cross-border payments.
Stephen Gilderdale, chief product officer at SWIFT, said back in July: "The new service is a direct response to the needs of small businesses and consumers for fast, easy, predictable, secure, and competitively priced cross-border payments. Our new service will allow banks to compete effectively in one of the fastest growing segments of the payments market, delivering a seamless experience for their customers."
While SWIFT Go matches the speed of the RippleNet platform, Ripple still has some key advantages. First, although the transaction is almost instant, settlement on SWIFT Go still takes at least a day or more, while settlement is also instant using Ripple/XRP. Second, SWIFT Go has higher fees, while XRP costs next to nothing.
The SEC action and SWIFT Go are two developments that bear watching for investors. Although XRP certainly has some advantages to compete effectively in the space, the SEC lawsuit may be the more impactful of the two. A resolution in favor of XRP could spark significant growth, but a verdict that goes against Ripple would likely negatively affect XRP.
Editor's note: This article has been corrected. XRP was not created by Ripple.
