The XRP (XRP -1.71%) cryptocurrency was created by a company called Ripple. It serves as a bridging currency that standardizes transactions within the Ripple Payments network, making it cheaper for banks to send money around the world.
The U.S. Securities and Exchange Commission (SEC) sued Ripple in 2020, alleging the company was in breach of financial securities laws. But the case was recently dropped as a consequence of President Donald Trump's pro-crypto agenda, which sent XRP soaring to $3.65, the highest since 2018.
However, the cryptocurrency has since declined by 25% , and it's now trading at about $2.75. Should investors buy the dip, or is this the beginning of a much steeper correction?
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Unlike most cryptocurrencies, XRP has a real use case
The majority of cryptocurrencies rise and fall in value based on the whims of speculative investors, because they have very little utility in the real world. To date, no cryptocurrency has earned widespread adoption as a payment solution among consumers and businesses -- not even Bitcoin (BTC 2.04%).
XRP is trying to buck that trend. The Ripple Payments network facilitates instant cross-border transactions by letting banks to deal with one another directly, eliminating the need for slow and costly intermediaries. A bank can choose to send XRP via Ripple Payments instead of sending domestic fiat currency, because it cuts out hefty foreign exchange fees.
In fact, a single XRP transaction will cost just 0.00001 tokens, or a fraction of one U.S. cent.
The SEC officially steps aside
XRP has a total supply of 100 billion tokens. About 59.5 billion are in circulation, and Ripple controls the other 40.5 billion and releases them gradually to meet demand. This arrangement formed the basis of the SEC's 2020 lawsuit. Since XRP is controlled and issued by a company, the agency felt it should be regulated the same way as other financial securities issued by companies, like stocks and bonds.
In August 2024, a judge issued a ruling that mostly favored Ripple, but the SEC quickly appealed the decision. This could have tied the parties up in court for several more years. But Trump appointed crypto-advocate Paul Atkins to run the SEC, and under his leadership, the agency has withdrawn several of its active cases against industry giants this year.
The SEC officially dropped its appeal against Ripple last month, ending the five-year legal battle. First and foremost, this means XRP won't be bound by a stricter set of regulations, which gives Ripple more freedom to operate. But second, there is speculation that a friendlier SEC could lead to the approval of spot XRP exchange-traded funds (ETFs).
In July, the agency approved a fund called the ProShares Ultra XRP ETF. It's a leveraged ETF that invests in XRP futures contracts, so it doesn't buy the cryptocurrency directly. However, futures-based Bitcoin ETFs preceded the approval of spot Bitcoin ETFs, so investors think a spot XRP ETF could be around the corner.
In theory, spot ETFs would create a new source of demand for XRP because they will give financial advisors and institutional investors a way to buy the cryptocurrency in a safe and regulated manner. Typically, it's otherwise too risky for them to own cryptocurrencies through traditional digital wallets because they are susceptible to hacks that lead to stolen assets.
Further upside is no guarantee for XRP
Despite the positive catalysts surrounding XRP, I actually think it's more likely to head lower rather than higher during the long term, for a couple of reasons.
First, banks don't have to use XRP to benefit from instant cross-border transfers through Ripple Payments, because the network also supports fiat currencies. Therefore, the success of Ripple Payments won't directly translate into further upside for XRP.
Second, I'm not convinced XRP will benefit from the approval of spot ETFs. They were a tailwind for Bitcoin because a growing number of investors already considered the crypto a legitimate store of value, thanks to its decentralized structure and capped supply. XRP isn't decentralized because it's controlled by Ripple, so any issues facing the company can hurt the token's value. The five-year legal battle with the SEC is the perfect example.
XRP's recent high was eight years in the making and after its all-time high in 2018 it declined more than 90%. A similar outcome is not out of the question this time around, so I wouldn't recommend buying the recent dip.
