Decentralized cryptocurrencies like Bitcoin (CRYPTO: BTC) aren't controlled by any person, company, or government. They are earned through a process called mining, which involves using computers to solve complicated mathematical problems to help validate transactions on the blockchain.
But the XRP (XRP -0.59%) cryptocurrency is different because it's issued directly by Ripple, the company that created it. This arrangement caught the attention of the U.S. Securities and Exchange Commission (SEC), and the agency sued Ripple in 2020 alleging it breached financial securities laws.
The legal battle was ongoing until last Thursday, when the SEC officially agreed to settle the case in line with President Donald Trump's pro-crypto agenda. Could this be a major upside catalyst for XRP?
Image source: Getty Images.
The SEC finally backs off
Ripple developed a payment system called Ripple Payments, which allows banks to settle cross-border transactions with one another directly no matter what existing payment infrastructure they use. This eliminates the need for intermediaries (middlemen), so money can be sent around the world instantly.
XRP is designed to standardize transactions through Ripple Payments. For instance, an American bank might send XRP to a French bank instead of sending U.S. dollars, which cuts out expensive foreign exchange fees. Once the French bank receives XRP, it can simply convert it into its domestic currency (the euro). The transfer would cost just 0.00001 XRP tokens, or a fraction of one U.S. cent.
XRP has a total supply of 100 billion tokens, with 59.3 billion in circulation and the other 40.7 billion controlled by Ripple, which releases them as necessary to meet demand. In its lawsuit, the SEC argued that XRP should be treated like a stock, a bond, or any other financial security normally issued by a company. This would've placed Ripple under a strict regulatory framework, adding costs and restrictions that might have derailed its business model.
In August 2024, a judge ruled that XRP might only be a security when it's issued to institutions, but not when it's traded on public exchanges or used in transactions. Ripple was slapped with a $125 million penalty, but the crypto community viewed it as a win. The SEC appealed the decision, which threatened to tie the matter up in court for several more years, but then President Trump was elected.
Trump promised to assemble a pro-crypto administration, and he appointed industry advocate Paul Atkins to run the SEC. The agency has paused or withdrawn several of its active cases against crypto giants like Binance and Coinbase under his leadership, and on Aug. 7, it officially withdrew its appeal against Ripple, ending a five-year legal slugfest.
But don't count on further upside for XRP
XRP set a new record high in July for the first time since 2018, as an imminent resolution with the SEC was widely expected. The token also benefited from the approval of the ProShares Ultra XRP ETF last month, which is a leveraged exchange-traded fund (ETF) that invests in XRP futures contracts. Investors consider this a stepping stone to the approval of spot XRP ETFs, the same way futures-based Bitcoin ETFs preceded spot Bitcoin ETFs.
But I wouldn't bet on XRP moving higher over the long term. First of all, banks don't have to use it in order to benefit from instant cross-border transactions through Ripple Payments, because the network also supports fiat currencies. Therefore, the success of Ripple's platform won't necessarily translate into a higher price for XRP.
Second of all, Bitcoin is benefiting from ETFs because it's considered to be a legitimate store of value, thanks to its decentralized nature and capped supply. Investors want a safe, regulated way to buy it, and ETFs are the answer. XRP, on the other hand, doesn't have a great track record of creating value for investors -- after all, it just spent seven years trading below its previous all-time high.
Moreover, since XRP is controlled by Ripple, the token's value is vulnerable to downside when the company experiences issues. The five-year legal battle with the SEC is a prime example, and remember, it's entirely possible the agency adopts a strict approach to crypto again under new government administrations in the future.
Therefore, I don't think XRP has a path to sustainable upside over the long term.
