Should You (or Anyone) Buy XRP?

It's already one of the largest cryptocurrencies, and it could have serious untapped potential.

If you've been looking for crypto investment opportunities outside of buying Bitcoin, you may have come across XRP. It's sometimes referred to as Ripple, but that's actually the name of the company that created it.

Although XRP ranks in the top 10 by market cap, it's still far off the highs it reached in early 2018. It's also not available at most U.S. crypto exchanges due to an SEC lawsuit.

Cryptocurrencies are usually high risk, high reward, but XRP is even riskier than the typical coin. Let's look at what it does and how to decide if you should buy any.

What is XRP?

XRP is the native cryptocurrency for Ripple, a payment technology released in 2012 and intended to make international money transfers faster, cheaper, and easier.

In a best-case scenario, Ripple would replace SWIFT and become the method of choice for international money transfers. SWIFT's market dominance means that won't happen anytime soon, but there are several advantages that could help Ripple chip away at it. Here are the biggest benefits of Ripple as a payment technology:

• Transaction costs are extremely low. Each transaction costs 0.0001 XRP. At the current price of XRP, that's a fraction of a penny.
• Transactions process quickly, with the average transaction taking just five seconds.
• XRP can be used by banks to facilitate trades of one currency for another. Instead of holding various currencies, they could hold XRP and swap currencies at a lower cost.

Since XRP is Ripple's cryptocurrency, buying XRP is a way of investing in Ripple. Just like you can buy Ether if you believe in Ethereum, you can do the same with XRP and Ripple.

Ripple has ambitious goals, and it has been making progress on them. According to its website, its RippleNet payments network includes over 300 financial institutions across over 40 countries. That's a start, but SWIFT is still far ahead. It's partnered with over 11,000 financial institutions across over 200 countries.

It's also worth noting that many of the financial institutions partnered with Ripple use RippleNet, but not XRP. The network can be used to process transactions for all kinds of currencies and commodities. Banks that use it aren't required to use XRP, and quite a few don't because of the volatility.

The SEC's lawsuit against Ripple

The most significant obstacle for Ripple and XRP right now is an ongoing SEC lawsuit. On Dec. 21, 2020, the SEC filed a lawsuit alleging that Ripple sold $1.3 billion in unregistered securities through its XRP cryptocurrency.

Ripple claims that XRP isn't a security. It has also said that the SEC didn't provide it with proper notice that selling XRP would be considered a securities offering.

One potential outcome is that Ripple and the SEC come to a settlement agreement. Until that happens or there's a ruling, the lawsuit will be a thorn in Ripple's side for several reasons:

• It's keeping Ripple from its goal of going public.
• It has resulted in XRP being unavailable to buy on many major cryptocurrency exchanges.
• It has likely kept XRP's price down. While many cryptocurrencies have blown away their previous prices in 2021, XRP hasn't come near its all-time high of $3.84 in 2018. At the time of writing, it costs less than $1. To be fair, it has still quadrupled investors' money in a year.

Should you buy XRP?

You could invest in XRP if you believe Ripple has potential and that it's likely to reach a favorable outcome in its SEC lawsuit. Keep in mind that it's a high-risk investment, even compared to other cryptocurrencies.

Ripple could prove to be extremely useful. International money transfers between banks can be slow, expensive, and difficult to even set up. Ripple solves those problems, and it has already secured hundreds of partnerships, including many with major financial institutions. There's also a large company behind Ripple that's focused on promoting it and moving it forward.

Despite its potential, there are several reasons to be cautious about buying XRP:

• The SEC lawsuit may have a negative impact on it going forward. It could be determined that Ripple violated securities laws, or the SEC could simply drag the case out as long as possible.
• Ripple's main competition, SWIFT, is already firmly entrenched in the banking industry.
• The success of XRP and Ripple isn't necessarily intertwined. Most of the financial institutions that work with Ripple don't use XRP.
• XRP isn't available for purchase on many of the top cryptocurrency exchanges in the United States.

That last issue with XRP means that if you're interested in buying any, the first step is finding an exchange that sells it. Among the major crypto exchanges, Coinmama and KuCoin are two that offer XRP.

A popular recommendation with any cryptocurrency investment is to only put in what you can afford to lose. That advice is good to follow when buying XRP. It has potential, but there's no guarantee that it will be a success.