The bullish momentum around XRP (XRP -1.76%) continues to grow after a series of recent legal wins against the Securities and Exchange Commission. The multi-year court case against Ripple (the company behind the XRP token) that started in 2020 looks like it is finally nearing completion, and crypto investors are becoming increasingly optimistic that XRP could skyrocket in price soon.
In fact, some crypto investors are convinced that doubling or even tripling in price seems to be within reach for XRP. After all, this summer XRP briefly doubled in price, from $0.47 to $0.95, after the first of its big legal wins. While XRP later gave back all of those gains, the crypto has undeniably explosive upside potential. So should you be buying XRP now?
The SEC and regulatory risk
To answer that question, it's important to dig into the latest news on the XRP litigation front. In mid-October, the SEC announced that it was dropping charges against Ripple Chief Executive Officer Brad Garlinghouse and Executive Chairman Chris Larsen for selling XRP tokens as unregistered securities. The move, as might be expected, was seen as a huge legal win, and XRP promptly registered its biggest single-day gain in nearly three months.
Even with its recent legal momentum, however, XRP is not yet out of the woods. The SEC is playing the long game here. While the SEC may have dropped the charges because it realized it no longer had a valid case, some legal analysts believe the move is part of a legal strategy to focus on the case involving Ripple itself, rather than on the company's executives. In chess, it would be the equivalent of sacrificing a piece on the chessboard in exchange for achieving a more advantageous strategic position.
That might explain why XRP is only up 5.4% during the past 30 days. That significantly trails the performance of market leader Bitcoin (BTC -2.47%), which is up a resounding 18% over the same time period. While XRP super bulls are taking to social media to describe optimistic scenarios for the next XRP rally, the market seems to be taking a much more measured approach.
From my perspective, there will not be a sustainable rally until XRP dispenses with regulatory risk once and for all. And that won't happen until mid-2024 at the earliest.
Scenarios for XRP
In a base-case scenario, XRP probably will continue to muddle through its case with the SEC, meaning that its price will likely remain locked in a relatively narrow range around the $0.50 mark for the next few months. At the same time, Ripple will continue to hemorrhage significant amounts of cash. According to Ripple executives themselves, the total cost of defending the company against the SEC will be north of $200 million.
In a worst-case scenario, XRP will lose its case against the SEC next year, or be forced to agree to a very adverse legal settlement. Along the way, Ripple could announce that it is giving up on its U.S. operations and moving overseas in search of a more favorable regulatory environment. That might spook even the most bullish of the XRP bulls, causing the price of XRP to plunge.
Image source: Getty Images.
And, finally, in a best-case scenario, Ripple will extend its legal winning streak well into 2024, finally emerging victorious after a long, three-year protracted battle with U.S. regulators. Ripple will begin to sign up major institutional clients for its Ripple payment network, and future growth opportunities will begin to appear once again in the key U.S. market. Along the way, Ripple's price will skyrocket.
Which scenario is most likely?
As an investor, the key question essentially becomes: Which of these scenarios is most likely? If you believe that XRP is close to winning its case with the SEC, then now might be the perfect time to load up on XRP while it's still trading for less than $1. But if you're less bullish, then XRP might be something to avoid. The crypto market is volatile enough, so who wants to deal with the extra volatility of a high-profile SEC case?
At the end of the day, a prudent investment strategy might be to focus on cryptocurrencies with minimum regulatory risk. These offer the best potential for long-term price appreciation, and you don't have to worry about reading the tea leaves on a complex regulatory case every few weeks. While I can certainly appreciate the upside potential for XRP, I'm currently looking elsewhere for better investment prospects.
