I picked up $1,180 worth of the XRP (XRP 6.01%) cryptocurrency in the spring of 2019. At the time, I thought that the token, also known as Ripple after the blockchain-based payment system it powers, was headed for a big future. Cryptocurrency services enabling cross-border money transfers with low friction and very low transaction fees looked like a fantastic idea for the long run.

XRP and Ripple have experienced some wild swings since then. Many investors are afraid to touch the token because of legal and regulatory challenges. But I'm holding on to my modest XRP investment, which has gained 270% in less than three years. Here's why.

Person standing on a roadway marked Cryptocurrency, which rises up into a giant question mark in the sky.

What's at the end of this road? Image source: Getty Images.

Regulatory drama

Leading cryptocurrency trading service Coinbase (COIN -2.84%) suspended XRP trades in January 2021. The token is still working its way through the regulatory challenges that led up to that event, and Ripple's future as a solution for international money transfers is up in the air.

The XRP in my Coinbase account could find a new home in some other trading platform that supports the currency, or a digital wallet. Coinbase no longer allows customers to buy or sell the token directly, but it's fine to send your XRP off to another digital wallet address. That includes sending payments in this currency to someone else's wallet. However, there are some limits. For example, these transactions have to involve at least 22 XRP tokens, which works out to roughly $26 at today's exchange rates.

Coinbase was far from the only crypto exchange that limited or halted XRP trading when the SEC came around. In fact, I'm not aware of an exchange that allows XRP trading for U.S. residents today. This uncomfortable status quo will probably remain until the Ripple foundation settles its differences with the Securities and Exchange Commission (SEC).

What's the problem?

The SEC launched an investigation of Ripple Labs in December 2020, alleging that the organization and its executives had raised $1.3 billion from sales of XRP as an unregistered security.

Ripple continues to fight the SEC action because they don't believe that they broke any rules on trading of securities. Instead, they argue that XRP is a digital asset more akin to traditional currencies such as the U.S. dollar, the Euro, or the Japanese Yen. It's just an all-digital version of the same concept, meant to serve as a transaction-settling agent. In particular, XRP is designed to serve as an intermediary in transactions between two different real-world currencies. The rules for trading currencies are different from the framework for buying and selling securities such as stocks and bonds.

In short, SEC is trying to impose one rulebook on Ripple's business while Ripple Labs prefers another.

Golden coin with the XRP logo in front of hundred-dollar bills and more coins.

XRP wants to be treated like a currency. Image source: Getty Images.

What's next?

I'm no lawyer and the SEC action against Ripple is ongoing. It could take years before we see a final verdict. Still, I don't mind holding on to my XRP tokens until the SEC drama reaches that last page.

You see, this regulatory review will probably help the U.S. government and other regulatory bodies around the world cement their regulatory standards for the crypto market as a whole. And if it turns out that currency-like tokens such as XRP should fall under the strict trading limitations of stock-style securities, maybe I'll lose some money on my XRP investment.

However, if it looks like a currency, swims like a currency, and quacks like a currency, chances are that XRP eventually will conform to the currency market's trading rules. That's the final outcome I expect, based on what we have seen so far. XRP looks a lot like a basic transaction-settling tool, not so much like you're becoming a part-owner of Ripple Labs.

Even in its current state of paralysis, XRP ranks as the sixth-largest cryptocurrency by market cap, with a market cap of $55.5 billion. That sum should surge if Ripple reaches the end of its SEC tussle and gets back to running its business instead. There's a real demand for a crypto-powered foreign currency service that doesn't carry the slow settlements and high fees of a full-featured cryptocurrency such as Bitcoin.

For example, Ripple signed a cross-border payments deal with business-to-business payments service Currencycloud in July. Three weeks later, credit card giant Visa (V -1.09%) flat-out acquired Currencycloud. I'm not saying that this was Visa getting its hands on Ripple services and XRP tokens without ruffling too many regulatory feathers, but that's one direct outcome of this $940 million deal.

Holding on for now; I'd probably buy more XRP if I could

XRP prices plunged when the SEC action started, but investors have gained confidence and token prices are skyrocketing at the legal saga moves along. I'm not the only optimist around here. So far, my untouched XRP tokens have gained $3,200 in market value and I have reason to believe that there's more to come.

Nailing down the regulatory framework will be good for all cryptocurrencies in the long run, even if some of the legal rulings don't get the details right. I'm willing to take my chances on a healthy end result, accepting a bumpy ride to the final destination.

So yeah, I'll hang on to my XRP tokens to the bitter end -- because the end may turn out to be pretty sweet after all.