It has been almost a year since I wondered aloud whether the XRP (XRP 4.24%) token, commonly known as Ripple, could reach the $5 price point in 2022. This turned out to be one of my most popular articles of the year, so I think it's time to circle back and take a fresh look at Ripple.
As expected, Ripple never rose to $5 in 2022
The review from last January found that Ripple very well could reach $5 per token, but not quickly. There were too many roadblocks ahead, dominated by the lawsuit filed by the Securities and Exchange Commission in 2020. The legal wheels often grind slowly, and this lawsuit is no exception.
As a result, Ripple's prices trended downward all year long under the weight of macroeconomic concerns and the uncertainty of the SEC's suit. The XRP token has taken a 56% haircut year to date. In other words, my guidance has been on target so far.
The two parties have filed most of their legal documents, with one last flurry of requests and opposition to redactions, and document sealing coming up in January. The final ruling is probably several months away since the so-called Daubert Motions that are still awaiting their final papers usually signal a final judgment roughly three months later. However, that gap is not written in stone, and cases involving securities and/or commodities are among the slowest post-Daubert processes.
What's the next step?
Even so, the SEC lawsuit is likely to reach its conclusion in the first half of 2023. When it does, a Ripple-friendly outcome would send the XRP token skyrocketing, while a ruling in favor of the SEC argument would have the opposite effect.
In either case, this case will have wide-ranging effects on the cryptocurrency market. Assuming that the lawsuit isn't settled before the final gavel falls, we're looking at a precedent-setting legal action here. That is exactly what Ripple wants and what the SEC has tried to avoid. The Ripple team is trying to establish a legal ruling that will place different cryptocurrencies under different legislative rules. Ideally, the legal framework would separate currency-like tokens such as Ripple from investment securities you'd buy and hold, expecting their value to rise over time. Bitcoin (BTC 3.60%) would arguably be an example of a security-style digital asset.
This distinction is crucial to Ripple's defense, as the SEC wants to treat all cryptocurrencies as securities. From that point of view, the Ripple company broke the law when it raised $1.3 billion by selling XRP tokens between 2013 and 2020. Ripple claims that the token sale was properly managed according to the best information and guidance available at the time, and that the token sales didn't qualify as an investment contract according to the three-pronged Howey test.
I'm no lawyer and won't try to guess how this lawsuit will play out. But whatever direction Magistrate Judge Sarah Netburn's final verdict leans, it will be a crucial step toward clarity in the legal status of cryptocurrencies. It won't be the final word, as I'm sure we'll see appeals stretching this matter out for many years, but even a glimmer of lucidity is an improvement over the murky waters crypto investors are wading through today.
Image source: Ripple Labs.
A tale of two extremes
So we're looking at two extreme possibilities for Ripple in 2023, with an infinite array of grayscale outcomes in between. Depending on where the legal chips fall, it is absolutely possible that XRP's price could skyrocket to $5 or more in 2023. At the same time, a harsher verdict could also send the token far below its current price of $0.36 per token. So in the relatively short term, Ripple's future is almost impossible to nail down.
However, I see strong returns in the far future, no matter what happens to the SEC lawsuit next year. That much-needed clarification becomes part of a larger regulatory puzzle, along with the Congress-level fallout from last month's FTX meltdown. The proverbial stars are aligning for a more robust legal system around cryptocurrency, including crucial details like more straightforward taxation rules, tighter oversight of cryptocurrency trading services, and improved safeguards against crypto-based fraud and money laundering.
Rocky roads lie ahead
The ride will certainly be painful as weaker hands fade into footnotes in the early history of cryptocurrencies. But Ripple has already proven its worth as an international payments processor with low fees and quick transactions. The system isn't perfect, and many crypto investors argue that its design is much too centralized under the control of Ripple Labs, Inc., and CEO Brad Garlinghouse.
But don't forget that Ripple already has an active business based on its almost-global payment processing network. Major partners include the country of Palau and global banks such as Banco Santander (SAN) and Bank of America (BAC 3.35%). American clients are pausing their business activity with Ripple until the SEC storm has passed, but the RippleNet payment system is running at full speed in other jurisdictions.
So Ripple seems poised to survive whatever the SEC can throw at it next year, building its worldwide business operations for the long haul. Frankly, I'll eat my hat if Ripple tokens aren't worth at least $5 each in 2025 and beyond. Just be prepared to tackle far lower prices in 2023, if the lawsuit doesn't go Ripple Labs' way.
Alright. Now, where did I put my edible hat again?
