If you're an XRP (XRP +2.50%) investor, the good news is that Ripple Labs (the company behind the XRP token) is finally starting to put its legal and regulatory issues in the rearview mirror. As a result, new opportunities for expansion in the U.S. market are starting to open up, and XRP is headed into 2025 with new momentum and new optimism.
The bad news, however, is that the market performance of XRP has not reflected that. In fact, XRP is down about 5% for the year. That might not sound tragic, but a number of top cryptocurrencies, led by Bitcoin, are up 50% or more for the year. So the obvious question becomes: Why is XRP continuing to underperform the rest of the industry?
Legal and regulatory risk
The best answer is that Ripple may not be as free and clear of regulatory issues as people would like to think. In August, a long-running court case involving the Securities and Exchange Commission (SEC) finally wrapped up, with Ripple agreeing to pay $125 million in penalties for improperly selling XRP tokens to institutional investors. In theory, that should have cleared the deck of any future legal or regulatory liability, and enabled Ripple to get back to business as usual.
CRYPTO: XRP
Key Data Points
But the SEC has until early October to appeal the case, and if it does, it could complicate matters. That might explain why the price of XRP did not rise more in August, as many investors expected. Many thought XRP would double in price to $1, but thus far, that hasn't happened. Instead, investors are sitting on the sidelines, waiting to see what happens next.
Image source: Getty Images.
You can blame the crypto "flash crash" in August for some of XRP's recent lackluster performance. However, other cryptocurrencies (including Bitcoin) already appear to be recovering, as investors regain their appetite for risk assets. In contrast, XRP is still down about 3% during the past 30 days.
Competitive landscape
The long-running court case with the SEC that started in December 2020 has had a dramatic competitive impact. From 2020 until now, Ripple has lost partners and customers. It has been forced to scale back its U.S. market presence and focus on overseas markets instead. And it has had to pay an estimated $200 million in legal fees to battle the SEC. All of that, in my opinion, has weighed heavily on the company and the future prospects for XRP.
Moreover, when it comes to technological innovation, other blockchains may have simply passed by XRP. I'm thinking specifically of Solana, which topped XRP in market cap to become the fifth-largest cryptocurrency at the end of 2023. This year, Solana is up about 35%, further widening the gap.
Remember: XRP launched back in 2012, before Ethereum revolutionized the concept of the smart contract in 2015. So, as Ripple executives recently acknowledged, there is still no smart contract functionality for the core XRP blockchain. While you can process and record financial transactions using this blockchain, you can't use it for more sophisticated transactions that involve smart contracts. In a best-case scenario, say Ripple executives, smart contract functionality could be coming in 2025.
Or, take the example of stablecoins. XRP launched at a time when stablecoins were not nearly the big business they are today, and before blockchains were launching stablecoins of their own. So, while it's fantastic that XRP is finally working on bringing a U.S. dollar stablecoin of its own to market, the fact remains that this new product really has a limited opportunity to unseat the current titans of the $150 billion stablecoin market.
What's next for XRP?
Yet there's still a lot to look forward to for Ripple in 2025. It might finally be able to focus on its core business instead of being bogged down in legal and regulatory issues. It can look for new ways to expand in the U.S. market. And it can continue to bring new products to market. All of that is bound to boost the price of XRP.
And, if you're being super optimistic, there's a chance that we could be talking about a spot exchange-traded fund (ETF) for XRP investors sometime in 2025. If that happens, it could be huge for the future price of XRP, given all the new money that could flow in from retail and institutional investors.
During the next 12 months, then, it's not out of the question that XRP could double in price to $1. But it gets a bit dicey from there. A lot of things will have to go right, and Ripple will have to mend its relationship with the SEC, before this former crypto darling can really skyrocket in value.
