Back in 2020, the U.S. Securities and Exchange Commission (SEC) sued a company called Ripple, alleging it was in breach of financial securities laws for the way it distributed its XRP (XRP -0.38%) cryptocurrency. The case weighed on the price of XRP for years, but the token has soared by 300% since President Donald Trump was elected last November.
Simply put, the SEC plans to be much friendlier toward the cryptocurrency industry under the Trump administration. In fact, earlier this month, the regulator agreed to pause its case against Ripple with the intention of negotiating a settlement, which was great news for XRP investors.
But there was even more good news announced earlier this week: The Senate officially confirmed President Trump's nominee to serve as chairman of the SEC, and he might be one of the most pro-crypto leaders the agency has ever seen.
Ripple created an innovative payments network
Transferring money across borders can be slow and expensive. Some banks use the international network run by SWIFT (the Society of Worldwide Interbank Financial Telecommunications), whereas others don't, meaning they often need intermediaries for every transaction, which can slow down the process.
Ripple is trying to solve that problem with the Ripple Payments network. It's designed to connect international banks with one another directly no matter what existing infrastructure they use, paving the way for instant cross-border transfers.
It created XRP to standardize those transactions, and it's very cheap to use -- a single cross-border transfer costs just 0.00001 XRP, which is a small fraction of one cent.
Therefore, an American bank might send XRP to an Italian bank instead of sending U.S. dollars because it would bypass much higher foreign exchange fees in the process.
This is where things got murky from a regulatory standpoint in 2020. Ripple controls around 41.6 billion XRP tokens out of the total supply of 100 billion and releases some each month to meet demand from institutions. This makes XRP very different from a decentralized cryptocurrency like Bitcoin (CRYPTO: BTC), which has a fixed supply that can't be altered by any company, person, or government.
Since Ripple is an active issuer of XRP, the SEC claimed the token should be classified as a financial security (like a stock or a bond). And had the regulator prevailed in its lawsuit, Ripple would have been forced to operate under a very strict set of rules.
It's no surprise XRP investors are glad the legal proceedings are now on hold, and since the SEC has resolved its other active cases against crypto giants like Binance and Coinbase, a full settlement is likely in the near future.
The SEC has a new pro-crypto chairman
Shortly after President Trump was elected, he nominated Paul Atkins to serve as chairman of the SEC. It takes time for the Senate to confirm all of a new president's nominations, so Atkins was only officially sworn in on Monday, April 21.
Atkins has worked at the SEC in lower-ranking positions in the past, but as chairman, he will have a much greater influence over its agenda. Prior to his recent appointment, he served as the co-chairman of the Token Alliance, which is a crypto advocacy organization.
He was also an advisory board member at Securitize, a company that helps tokenize real-world assets on the blockchain, making them investible for consumers and institutions. Simply put, he's a clear supporter of the crypto industry.
Having a pro-crypto chairman of the SEC could benefit XRP in more ways than one. For instance, companies including Bitwise, Franklin Templeton, and Grayscale are seeking approval from the SEC to launch XRP exchange-traded funds (ETFs), which would give financial advisors and institutional investors a safe, regulated way to own the cryptocurrency.
Bitcoin ETFs have attracted around $100 billion from investors, so they could certainly drive demand for XRP, which might lead to higher prices. Once Ripple's legal issues with the SEC are officially resolved, I wouldn't be surprised if those applications are quickly approved.
Image source: Getty Images.
Don't rush to buy XRP just yet
Unlike most cryptocurrencies, XRP has a legitimate real-world use within the Ripple Payments network. However, banks don't have to use XRP to benefit from instant cross-border transactions -- they can also use fiat currency.
That means the success of Ripple Payments won't necessarily translate into higher prices for XRP, so its value is heavily tied to the sentiment of speculative investors, as is the case with many other tokens, including Shiba Inu and Dogecoin.
That might explain why the post-election rally in XRP failed to carry the token beyond its previous all-time high from way back in 2018. In fact, it's currently down 36% from its recent January peak, so its momentum appears to be fizzling out.
Although the approval of ETFs could be a positive catalyst for XRP, the effects might only be temporary because it simply doesn't have enough concrete fundamentals to support its value. As a result, investors should probably exercise caution before piling into this speculative token.
