It's been a strange roller coaster of a year for XRP (XRP -1.80%). There was a mini-rally in March, a huge rally in July, and another mini-rally in mid-October. But, after all that, XRP is still trading for just $0.62. That's nearly 35% below its intrayear high of $0.95.
That would seem to put XRP squarely in "buy the dip" territory. If you believe in XRP's long-term growth prospects, then scooping up some XRP now might seem to be a relative bargain. But there are three key factors to keep in mind if you plan on buying XRP.
Reliance on a single catalyst
XRP is reliant on a single catalyst right now: resolution of its long-running court case with the Securities and Exchange Commission (SEC). Since December 2020, the SEC has been attempting to classify XRP as an "unregistered security," so the price of XRP has been highly correlated with the zigs and zags of that case. If the market thinks that Ripple Labs (the company that created the XRP crypto token) is close to winning its case, then the price goes up. If the market thinks that Ripple Labs is close to losing its case, the price goes down.
Image source: Getty Images.
That explains the wild roller-coaster ride of XRP this year. Every quarter, it seems, some new detail about the case is released, or some new twist and turn in the legal arguments takes place. In mid-July, for example, Ripple Labs won a huge legal victory, and the price doubled almost overnight from $0.48 to $0.95. But then, when the SEC announced that it might appeal the ruling, XRP promptly gave back all of its gains within a month. For now, it looks like the XRP roller-coaster ride will continue into 2024 and beyond.
Underperformance vs. the crypto market
While, admittedly, XRP is up a sizzling 82% for the year, that still pales in comparison to how other top cryptocurrencies are performing for the year. Bitcoin (BTC -1.95%), for example, is up 128% for the year. And other, riskier cryptocurrencies are up anywhere from 150% to 500% for the year. The newest market darling, Solana (SOL -5.22%), for example, is up a blistering 478% year to date.
So, if you put XRP into this context, its performance doesn't look nearly as impressive. And, if you take into account the risk-reward profiles of other cryptocurrencies, XRP looks far less enticing as an investment. Just about anyone would agree that Bitcoin -- the largest cryptocurrency in the world with a massive $737 billion market cap -- is less risky than XRP, which has a $33 billion market cap. Since Bitcoin is far outpacing XRP in terms of market performance this year, you're getting the best of both worlds with Bitcoin: better performance with less risk.
Unrealized promise
Finally, there's the matter of XRP's underlying business model. Three years ago, when the SEC court case started, it was possible to argue that XRP had the makings of a world-class payment system. The XRP crypto token helped to power the Ripple payment network, which was being used by financial institutions to send money across borders almost instantaneously at very low cost.
But a lot has changed between now and then. We've seen the launch of entirely new blockchain projects that are faster, cheaper, and more efficient than Ripple. Solana, for example, officially launched in March 2020 and is theoretically capable of processing 65,000 transactions per second. That makes it one of the fastest blockchains in the world. That's a huge competitor on the scene that didn't exist three years ago.
At the same time, XRP continues to deal with mounting legal fees and lost opportunities due to the ongoing SEC drama. Top Ripple executives told CNBC in May that the final legal cost of going head-to-head with the SEC might end up being more than $200 million. That's money that could have been used to build out the Ripple payment network.
If not XRP, then what?
If you currently hold XRP in your portfolio, now is not the time to sell. There is still a chance that XRP could win its case against the SEC, and when it does, the price of XRP could increase significantly. So hold on to your XRP. But view it as a winning lottery ticket and not as a long-term investment.
If you're a long-term investor, there are plenty of other cryptocurrencies out there with better long-term growth prospects. If you are risk-averse, then Bitcoin might be a better target. And if you are risk-seeking and willing to experience wild swings in volatility, then even Solana -- which has almost caught up to XRP in terms of overall market cap -- might be a better target for your portfolio.
