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Should you jump on the XRP bandwagon?
There have been dramatic gains in cryptocurrency prices across the board in the past year, even if you factor in the slump we’ve seen in recent months.
Ripple’s native token, XRP, is no different. On June 14, 2020, XRP was trading at around $0.191, according to CoinDesk data. At the time of this writing, it was worth $0.884 — that’s more than four times what it was a year ago.
What are Ripple and XRP?
Ripple is a company that wants to use blockchain technology to improve payment processing, primarily for financial institutions.
Its coin, XRP, is one of the ways it does that. XRP is faster, cheaper, and more sustainable than Bitcoin (BTC). Granted, that can be said about many of the digital currencies that followed in the footsteps of the first-mover and crypto grandaddy.
Where Ripple really stands out is its existing deals with banks and financial institutions. It has over 300 such partnerships, including with:
- Bank of America
- American Express
- Banco Santander
Rather than disrupting the banking sector from the outside, Ripple chose to work with the major players to integrate blockchain technology from the inside.
Another thing that’s unusual about Ripple is that it has pre-mined all of its coins. Unlike Bitcoin, 100 billion XRP were produced at the outset. These are being gradually released onto the market. In contrast, new Bitcoins will continue to be mined until it reaches its maximum supply of 21 million in around 2140.
Here’s what you need to know about Ripple in a nutshell:
- What it does: Ripple is the financial institution’s cryptocurrency. It’s an international network of payment providers that will make it faster and cheaper to move money around.
- Ripple’s token: XRP.
- Management team: Ripple CEO, Brad Garlinghouse has worked with AOL and Yahoo. Its Chief Technology Officer, David Schwartz has developed systems for both CNN and the NSA. It has 500 employees and offices in nine countries.
- Date launched: 2012.
- Market cap: $41.7 billion (CoinMarketCap, June, 2021).
- Availability: Many top cryptocurrency exchanges in the U.S. have suspended XRP trading, so you may have to shop around.
Ripple and the SEC
At the end of 2020, the SEC announced it was taking action against Ripple. The case is still ongoing and hinges on whether XRP is a cryptocurrency or a security.
The SEC argues that XRP is a security, and should have been registered as such. Ripple argues that it is a cryptocurrency like Bitcoin or Ethereum (ETH), which the SEC has defined as commodities. Its lawyers also say the SEC waited too long to bring the case. It allowed the company to build its business and customer base for several years before it stepped in.
It isn’t clear how long the proceedings will continue. We may see a decision later this year, but Ripple could have this suit hanging over its head for years to come. If Ripple loses, it could decimate the currency’s value and would have a knock-on effect for the whole industry.
Should you invest?
If you’re a U.S. resident, it’s not easy to buy XRP right now. Many exchanges de-listed it due to the SEC action. For those who can purchase XRP, here are a few questions to ask yourself before you buy this cryptocurrency:
- Do you see XRP’s price increasing in the long term? XRP has already quadrupled in the past year, so it is important to think about how much more it can grow. Some predict its price could soar, while others think there are better types of cryptocurrency available. It’s never a great idea to invest if you’re only looking for short-term wins — instead, consider how you think XRP will perform in the next 5 to 10 years.
- Are you comfortable with the additional risk of the SEC proceedings? All cryptocurrency investments are risky, but Ripple’s legal battle is an additional risk. Ripple says it will continue and may relocate to a friendlier jurisdiction. But it isn’t clear whether XRP would actually survive. On the other hand, if the ruling goes in Ripple’s favor, we could see a substantial price increase.
- Is your emergency fund topped up and are your retirement savings healthy? Before you invest in any cryptocurrency, make sure you have three to six months of emergency savings tucked away. You don’t want to find yourself unable to cover a financial emergency because you tied up your cash in crypto. Similarly, saving for retirement should take priority over cryptocurrency investments. Imagine reaching retirement age without enough to support you just because you took a punt on a risky cryptocurrency.
Ripple is an interesting investment because it has a serious business proposition and a strong management team behind it. But don’t get too carried away by the possibility of quadrupling your money. You could just as easily lose it all, especially if the SEC’s case is successful.
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About the Author
Emma owns the English-language newspaper The Bogota Post. She began her editorial career at a financial website in the U.K. over 20 years ago and has been contributing to The Ascent since 2019.