Back in 2018, XRP (XRP -0.38%) was one of the hottest cryptos in the world. Prices had risen from $0.01 to an all-time high of $3.84 , and it looked like XRP was one of those magical get-rich-quick cryptos headed to the moon. But ever since 2020, Ripple (the company that created XRP) has been mired in an absolutely epic lawsuit with the SEC, and the crypto has gone into a deep freeze. XRP is trading at just $0.30 these days and some crypto exchanges won't even allow you to buy and sell it. There is a very real fear that XRP could go to zero.

So is there really a case for buying XRP now, in the middle of a crypto market downturn? It might sound crazy, but the answer is yes. Most importantly, the regulatory landscape continues to change dramatically since the SEC first launched its lawsuit against Ripple in 2020. A more favorable regulatory environment means Ripple might actually end up winning its lawsuit, something that had once been thought to be impossible. If this happens -- and it is a big, highly speculative "if" -- it could provide a huge boost to the price of XRP over the long term.

What is XRP, exactly?

XRP's problems stem from the fact that nobody can really agree on what it is. Ask nearly any crypto investor, and they'll probably tell you that XRP is a cryptocurrency just like Bitcoin (CRYPTO: BTC) or Ethereum (CRYPTO: ETH). Given that XRP is the native token of the XRP blockchain and that XRP is bought and sold on crypto exchanges, that seems to make sense. XRP looks like a crypto, acts like a crypto, and trades like a crypto.

Excited person in yellow shirt responding to good news on his mobile phone.

Image source: Getty Images.

However, the SEC clings to the notion that XRP is actually an "unregistered security" issued by Ripple and should be regulated accordingly. This is the basis for the lawsuit against Ripple. As the SEC sees it, the sale of $1.3 billion in XRP to investors over a seven-year period should be viewed as an ongoing sale of unregistered securities. Not surprisingly, Ripple's supporters have called foul on this. Why should regulators treat Bitcoin and Ethereum one way, and Ripple another?

This is actually a very important question, and one that has never been fully answered, despite a number of congressional hearings on how to regulate crypto. Elected officials can't seem to make up their minds on whether crypto is a security or a commodity, or some kind of new digital asset that requires an entirely new regulatory framework. For XRP, of course, it has become an existential issue. How people define XRP is critical to its future existence: If people decide XRP is a "security," then it's game over.

A new regulatory environment

That's why the introduction of the new Lummis-Gillibrand crypto legislation in Congress at the beginning of June is so important, not just for XRP, but also for crypto as a whole. The legislation offers expanded guidance on how to regulate digital assets and is generally considered to be favorable to crypto.

With few exceptions, it says crypto should be regulated like a commodity, which means any crypto would no longer fall under the purview of the SEC. If cryptos are treated as a commodity and not as a security, then it seems as if a new opening might exist for Ripple to actually win its case and for XRP to escape the regulatory overreach of the SEC.

A fresh start for XRP

As proof that not all is yet lost, Ripple -- far from conceding its case against the SEC -- is now exploring a potential IPO that would transform the company into a publicly traded crypto developer. Funds raised from the IPO could be used to make improvements to the XRP blockchain and build out paid services using that blockchain. As a contingency plan, Ripple is considering plans to exit the U.S. and move to a more crypto-favorable jurisdiction.

The good news is that we could finally be getting some clarity on the fate of XRP. In fact, a final verdict on the SEC case could be coming by winter. If you've been holding onto XRP, waiting patiently for it to retrace its way back to its all-time highs, it could finally be time to celebrate. Granted, this is highly speculative, but there is now hope XRP could finally emerge from its deep freeze and thaw out by spring.