The embattled cryptocurrency commonly known as Ripple, or technically XRP (XRP -1.11%), has risen more than 70% during the past year. The reason? A resurgence of investor interest in cryptocurrencies has raised the metaphorical tide, including pushing Bitcoin to within shouting distance of its all-time highs.
But unlike Bitcoin, XRP is nowhere near its former high of $2.78 per share. That's because an ongoing litigation cloud is casting a large shadow. Ripple Labs, the creators behind XRP, is locked in a lawsuit with the Securities and Exchange Commission over how the token should be regulated and the potential punishment for selling the token to institutional investors.
That puts investors in a tight spot when determining where XRP's price could go, and the possible outcomes are admittedly pretty wide-ranging. Here is what you need to know.
Abundant long-term potential
Ultimately, supply and demand determine crypto prices. In other words, how much are buyers willing to pay, and how much will sellers let the coins go for? The more buyers, the higher the price goes, and vice versa. But the long-term dynamics of this are more complex. It boils down to what XRP does and what benefits it could provide to society that ultimately fuel the long-term demand.
XRP is a coin that operates on the Ripple blockchain. The Ripple ecosystem is designed primarily for cross-border transactions. Cross-border payments are potentially a tremendous opportunity, as even in today's economy money moves slowly. Most cross-border transactions go on the global SWIFT network, which can take days to settle funds. Ripple can do this in seconds.
The speed of cross-border transactions on Ripple makes it a potentially appealing tool for global banks, especially in emerging markets. XRP is pre-mined with a capped 100 billion token supply, unlike many cryptos. That means long-term adoption of XRP could support price appreciation.
Serious short-term risks
The main problem holding investors back is the uncertainty of a lawsuit between Ripple Labs, the creators of Ripple and XRP, and the SEC. The courts have already ruled that Ripple Labs by selling coins to institutions has violated securities laws, so there are real risks that the legal process will ultimately damage the appeal of Ripple and XRP.
That could be as monetary damages to Ripple Labs, which controls much of the operational aspects of the blockchain, or regulatory impacts if harsh rules come out to govern how consumers use cryptocurrencies.
It's a situation with such wide-ranging and unpredictable outcomes that it's wise for many to err on the side of caution, and that's why the price hasn't quite taken off like the prices of other cryptos have during the past year.
Image source: Getty Images
Can XRP rally to $1?
As I said earlier, short-term prices are market-driven. So can XRP rally to $1 from today's price of about $0.65? Absolutely! Will it? Unfortunately, nobody can know for sure. I like the odds if cryptocurrencies continue to rally. Leading crypto exchange Coinbase recently reported that a surge in trading traffic managed to crash its servers, so that speaks to how much investor interest there is in cryptocurrencies right now.
If Ripple makes out well in court, it would likely tremendously boost XRP prices. You get the sense that the investor base is waiting to see how things shake out before leaning too heavily one way or the other.
That makes a dollar-cost average strategy necessary for managing risk. If you want to own XRP, buy a little at a time in regular increments. That way you'll slowly build an investment with multiple purchases that average a buy-in price. It will ensure you don't buy at the absolute top or bottom and position you for success if XRP prices rise over time.
