The total value of all cryptocurrencies in circulation hit a new record of $3.9 trillion in December, after spending almost three years in a brutal bear market. Donald Trump’s presidential election win on Nov. 5 was the catalyst that triggered the surge, as he campaigned on a very pro-crypto agenda.
XRP (XRP 2.53%) has been one of the star performers since that date, soaring by about 530%. XRP is the cryptocurrency token issued by Ripple, the developer of a unique payments network designed to help global banks settle transactions with one another directly and instantly.
XRP is not far from it record high of $3.40, but could it soar even further to a new milestone price of $5 this year?
Ripple has faced scrutiny since 2020
Ripple has been locked in a contentious legal battle with the U.S. Securities and Exchange Commission (SEC) since 2020. The regulator alleged Ripple violated securities laws for the way it sold the XRP token to the public.
XRP has a total supply of 100 billion tokens, with 57 billion in circulation, and the other 43 billion held by Ripple. The company releases some of those reserves each month to meet demand from banks, which use it to standardize transactions within the Ripple Payments network. For example, an American bank might send XRP to a Japanese bank instead of sending U.S. dollars to bypass currency exchange fees and other transaction costs.
That makes XRP very different from a truly decentralized cryptocurrency like Bitcoin, which has a capped supply and isn’t controlled by any individual or company.
As a result, the SEC argued that XRP should be classified as a financial security (like a stock or a bond), meaning Ripple would be subjected to a very strict set of rules, thus significantly disrupting its business.
A new era in crypto regulation
The Ripple lawsuit was partially resolved in August 2024. A judge ruled that XRP might only be a security in specific situations, like when it’s issued to institutions, but it might not be a security when it’s traded on crypto exchanges or when it’s used in transactions. The judge only hit Ripple with a financial penalty of $125 million, much less than what the SEC sought.
However, the SEC appealed the decision, which threatened to tie the company up in court for several more years. That’s why Trump’s election win triggered such a sharp rise in the value of XRP.
Shortly after Nov. 5, Trump nominated Paul Atkins to run the SEC (pending Senate approval). He’s a pro-crypto businessman who is currently the co-chairman of the Token Alliance, which is a crypto advocacy organization. In other words, he’s a clear-cut supporter of the industry.
A date hasn’t been set for Atkins’ confirmation hearing yet, but having already served in the SEC under President George W. Bush, he should have a smooth path to approval. Investors are speculating that once he’s officially on the job, Ripple’s regulatory woes could ease and eventually disappear.
Image source: Getty Images.
XRP could hit $5 this year, but there’s a catch
With a market capitalization of about $180 billion, XRP is currently the world’s third-most-valuable cryptocurrency. At a price per token of $5, its market cap would climb to about $287 billion, which would still be a mere fraction of Bitcoin’s $2.1 trillion valuation. Achieving the $5 milestone in 2025 doesn’t seem out of reach from that perspective.
But here’s the issue: While a friendlier SEC will almost certainly benefit Ripple, it won’t necessarily benefit XRP. Banks don’t have to use XRP with the Ripple Payments network because they can also use fiat currencies and still benefit from instant global transactions. That means the value of XRP isn’t directly tied to the success of the payments network.
In other words, XRP is a highly speculative asset just like most cryptocurrencies, with very little in the way of concrete fundamentals propping up its value. When the token set its all-time high of $3.40 in 2018 (which it still hasn’t surpassed), it wound up plunging by more than 90% less than a year later for that very reason.
Sure, it’s entirely possible the enthusiasm sparked by the Trump administration’s crypto-friendly agenda could fuel a rally in XRP that carries it to $5 sometime this year. However, it’s unlikely to stay there for the long term, and investors risk being caught out by another 90% collapse. In other words, XRP probably isn’t the best place to park your money.
Anthony Di Pizio has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Bitcoin and XRP. The Motley Fool has a disclosure policy.
