Imagine buying $1,000 of Ripple (XRP +1.33%) three years ago. That was before the Securities and Exchange Commission (SEC) filed a trade-stopping lawsuit that is still inching its way through the legal system. Before the latest cryptocurrency surge, and before the crypto winter that followed. Many digital currencies have soared over this period. For example, Bitcoin (BTC +1.88%) has gained 143% and Ethereum (ETH +1.77%) posted a $333% price increase. There was clearly some room for crypto gains in this time span.
So let's see. How would that $1,000 investment in Ripple (XRP) have performed over the past three years? Ah, yes -- here's the chart I was looking for:
That's a gain of 18% in three years, adding $180 to your hypothetical investment. The compound annual growth rate (CAGR) works out to 5.7%, trailing behind the S&P 500 (^GSPC +0.13%) stock market index's CAGR at 8%.
Why is Ripple lagging behind other cryptocurrencies?
First and foremost, Ripple investors pay close attention to the SEC lawsuit. The legal challenge knocked Ripple out of action in all U.S. cryptocurrency trading platforms for more than two years. The return to trading on services such as Coinbase was not a complete triumph, but a partial courtroom win with the potential to drag out across several years of appeals. How incomplete is the victory? Well, fairly rambunctious trading platforms like Robinhood (HOOD +1.85%) still aren't comfortable with Ripple's legal situation and have not yet enabled trading of the cryptocurrency.
So the current state of relative normalcy is just that -- a small step forward with miles left to go. Ripple investors are wise to keep a close eye on the initial decision, the upcoming trial, and whatever comes next. Nothing has been written in stone yet.
Apart from that, the Ripple Payments (formerly RippleNet) international payments network has shown some progress over the last few years. For example, the Republic of Palau is developing an official stablecoin based on Ripple's technology. European regulators are working closely with Ripple labs to develop a border-crossing payments framework, currently in an early testing phase. It's just not easy to focus global attention on these modest business improvements in the shadow of that potentially game-changing legal drama.
And now I'm back in a New York courtroom again. Alongside other Ripple investors, I pay attention to the developments in those halls of justice.
Where will Ripple go from here?
The final outcome in the SEC lawsuit holds a lot of power over Ripple's investment value. That's true in the short term, as SEC-related headlines continue to draw Ripple's price chart, and also for the long haul as Judge Torres (and perhaps the appellate courts of the future) build important regulatory principles from this case.
As it stands, the legal proceedings have suggested that at least some cryptocurrencies (such as Ripple) should not be treated as stock-like securities, and might therefore not be subject to the SEC's rulebook at all. That ruling applies when buyers and sellers are ordinary investors or simply users of the Ripple Payments transactional system. But even that verdict wasn't a complete win, giving the SEC room to treat Ripple like security when it's sold directly from Ripple Labs to institutional investors.
And it could take years to reach final clarity. The U.S. District Court for the Southern District of New York was just the first stop of perhaps many, maybe including the Court of Appeals and the Supreme Court. This early step is already three years in the making, and still ongoing with hearings and trials scheduled in 2024.
I'm not saying that the patent suit Oracle (ORCL +9.02%) filed against Alphabet (GOOG +0.37%) (GOOGL +0.50%) in 2010 is a perfect example of what to expect, since one proceeding was a straightforward patent case involving two technology giants and the other is a government agency attempting to enforce its trading rules against the launch of a new digital currency.
CRYPTO: XRP
Key Data Points
The cases differ fundamentally in nature. Still, the showdown over Java code in Android phones showed how long a potentially game-changing legal proceeding can take, especially in pioneering domains like the early days of smartphones or the emerging cryptocurrency market. The Supreme Court slammed the final gavel for that drama in 2021, 11 years after the original complaint. While it's not possible to predict the exact timeline, cases like these can evidently span over a decade. The parties could also settle or stop pursuing appeals much earlier -- I'm just talking about the potential for a lengthy drama here.
In the meantime, I expect Ripple Labs to find some middle ground with U.S.-based cryptocurrency trading platforms and carry on its global business as usual. The American market is of essential importance, and the Ripple community would certainly welcome a favorable final verdict -- but again, this is a global project with inherently international ambitions.
That's why I think Ripple's price chart will eventually detach from the lawsuit progress in many ways. The cryptocurrency should eventually be valued by its acceptance and use in real-world international payment usage. In that field, Ripple keeps taking baby steps forward with no setbacks to speak of so far.
So Ripple's returns have not been inspiring over the last three years but I expect better days ahead. There's no source of immediate rocket fuel on the horizon quite yet, but those small steps can add up over time. In the end, I see Ripple as a solid choice for patient investors with a long-term mindset. Day traders and other short-term holders should probably look for more volatile ideas elsewhere.
