After a tumultuous past three years, in which XRP (XRP 2.49%) has been embroiled in an epic legal battle with the U.S. Securities and Exchange Commission (SEC), the smoke finally appears to be clearing. After a major legal victory this summer, XRP now trades at $0.50, up 47% for the year. 

If you're a glass half-full investor, signs pointing to a final conclusion to the SEC legal battle could be a reason to load up on XRP before the crypto explodes in value. If you're a glass half-empty investor, though, the enormous regulatory risk still hanging over XRP could be a clear warning signal to stay clear. So which is it? Let's take a closer look.

The regulatory battle over XRP

In many ways, the regulatory battle over XRP is a defining one for the crypto industry. At the heart of the case is a single issue: whether or not XRP is a security. If the SEC loses this case and has to admit that XRP is not a security, it could badly weaken its position in its overall crackdown on the crypto industry, which now includes a lawsuit against cryptocurrency exchange Coinbase Global (COIN -0.76%) and pending enforcement actions against other cryptos it believes to be securities.

All of which leads me to think that we're not going to see a settlement in this case anytime soon. The SEC has already attempted to appeal the court's ruling from earlier this summer. While this appeal was eventually denied, the current outlook is for another round of legal proceedings to begin in April 2024. Where they go from there is really anyone's guess. Some think the case could wind up by late 2024, while others think that it might drag on until 2027.

Worried investor watching graph trend down.

Image source: Getty Images.

Meanwhile, Ripple (the company behind the XRP crypto token) continues to hemorrhage cash. Hiring high-end lawyers to battle the SEC is not cheap, and Ripple admits that it could end up spending as much as $200 million fighting this case to the long, bitter end. Can Ripple really afford to spend hundreds of millions on legal fees, disrupt its operations for years, and suspend expansion in the key U.S. market while it waits patiently for a resolution to this case?

While this might sound like a negative appraisal of the situation, the market seems to agree. In July, when it looked like XRP was going to win its case against the SEC, the crypto token nearly doubled in value overnight, almost hitting the $1 mark. But since then, XRP has given up nearly all of its gains, as investors realize there might still be a lengthy legal process to come.

The upside potential of XRP

Against this legal and regulatory backdrop, the fact remains that XRP still holds enormous upside potential from a technological perspective. XRP is the governance token of the Ripple payment network, which enables cheap, nearly instantaneous cross-border payments. Before the SEC court case started in December 2020, this payment network was largely considered to be best-in-class.

Most notably, Ripple can be used for cross-border remittances. That explains why financial services giants such as Western Union (WU -1.28%) and MoneyGram International have partnered with Ripple in the past.

And, given the globalization of the world's financial markets, the Ripple payment network might be adapted for a wide range of other activities. Some have suggested that Ripple might be used as the framework for a cross-border payment network for the BRICS (Brazil, Russia, India, China, South Africa) nations. Others have suggested that it might be used for the development of Central Bank Digital Currencies (CBDCs).

This is all very exciting if you're looking for future long-term growth from XRP. And there could be even more good news on the way. The latest rumor is that Ripple might be planning an IPO. The funds from the IPO could then be used to finance the further expansion of Ripple, opening up further utility for XRP.

Pumping the brakes on XRP

Even with its recent gains this year, XRP is still trading at 87% below its all-time high of $3.84. Thus, XRP is still very much a speculative investment, with the very real possibility that it could go to zero if it ends up losing its case against the SEC. If you're thinking of buying XRP, you need to be very aware of the risks involved. I can't think of any other crypto that is facing so much regulatory risk.

That being said, if you have a rainy day fund and are fully prepared to lose 100% of your investment, then it might be profitable to get in now while XRP is still trading at around $0.50. After all, the XRP bulls are convinced that the crypto is headed to $3 and beyond. Until more details are known about what's happening next in the SEC case, though, I'm adopting a wait-and-see approach with XRP.