Ripple's digital payment system was on top of the world at the end of 2020. The XRP (XRP 0.77%) cryptocurrency that serves as the RippleNet platform's preferred transaction currency reached a multi-year high of $0.69 per token in late November as the vision of an ultra-efficient international payment system started coming together.
But the progress hit a brick wall just a few weeks later when the Securities and Exchange Commission (SEC) charged Ripple and its top executives with conduction of $1.3 billion of trades in unregistered securities. Many cryptocurrency exchanges and trading services stopped offering XRP trades over the next couple of weeks and the currency's price plunged below $0.18 per token before the end of 2020.
The XRP chart has been choppy ever since, soaring or plunging as the SEC lawsuit worked its way through the legal process. When the SEC stepped in, many investors had expected XRP to soon eclipse its all-time highs just below $4 per token. Is that still a reasonable goal in the near future?
Let's have a look.
The legal challenge
Even though the number of trading services for XRP tokens is quite limited these days, the digital currency still boasts the eighth-largest cryptocurrency market cap at $37.7 billion. It's only No. 16 in terms of daily trading volumes, lagging far behind leaders like Tether and Bitcoin but nearly tying the coins ranked around the eighth position.
In other words, XRP is still an actively traded cryptocurrency, in spite of many leading broker services washing their hands of the potential legal blowback that could result if Ripple is found guilty of securities trading regulations.
That fact speaks volumes about the demand for a swift and safe border-crossing payments service with minimal transaction fees. RippleNet offers all of these features, alongside compatibility with many different currencies -- both digital and fiat.
The SEC sees XRP's market position in a different light. The lawsuit alleges that the token should be subject to the same rules and regulations as traditional securities, along the lines of stocks, bonds, or options contracts. Ripple's lawyers and executives are trying to explain to the court that those rules might apply to a value store like Bitcoin but not to XRP. This token is arguably a closer match for old-school currencies such as the euro, the dollar, or the yen. As the functional lifeblood of a global payment network, XRP should be treated more like the decentralized programming network Ethereum, which the SEC is happy to leave under the same banner as your favorite fiat currencies.
This process will take time
The outcome of the SEC lawsuit will either crush XRP's real-world value with draconian regulations or allow the currency to flow through American cryptocurrency trading platforms. Any shades of gray in between these extremes will be a win for Ripple in all practical matters. Don't forget that this case likely will set the tone for the regulation of other cryptocurrencies and blockchain networks.
The legal action started more than a year ago and the case is still just in the discovery phase, where the two sides are collecting evidence in support of their claims. It could take years before we have a final outcome here, and the wait will be long indeed if the parties take full advantage of their appeal options.
XRP can reach $5, but not quickly
Legal challenges are never easy to predict, but the cryptocurrency market as a whole would benefit from a final judgment leaning in Ripple's direction. That pressure may not mean much when the adversary is a division of the U.S. government, but Ripple and XRP will at least have the benefit of top-quality legal advice and community support along the way. There is too much at stake to leave the cryptocurrency alone on the front line.
That's why a full-fledged SEC victory would come as a surprise to me. It's a possible result in my eyes, but not a probable one. XRP should absolutely rise above $5 if I'm right.
However, it won't get there quickly. The chances of a final verdict in 2022 are slim to none, so XRP investors should hunker down for a multi-year ride to that lofty peak. Then again, patience is the best of all virtues for a serious investor, since unbreakable patience plus robust long-term growth equals wealth-building returns.
All things considered, I don't mind holding on to my modest collection of XRP tokens for the next several years as this legal drama plays out.