Currently trading at a super-low price of just $0.65, crypto token XRP (XRP +0.19%) might appear to be wildly undervalued. After all, XRP boasts a cross-border payment network known as Ripple, as well as partnerships with some of the biggest names in the financial services industry. Moreover, it is trading at a steep 85% discount to its all-time-high of $3.84.
But dig a bit deeper, and there are plenty of obvious warning signs. If you are thinking about investing in XRP, there are several key risk factors you need to know.
XRP's regulatory issues
First and foremost, there's the problem of XRP's regulatory woes. These date back to December 2020, when the SEC filed a lawsuit against Ripple Labs, the creator of the XRP crypto token. According to the SEC, XRP is a "security," and it is doing everything in its power to regulate it as such.
That's terrible news for investors. It means that XRP's core business operations have been sidelined in the United States until this regulatory mess gets cleared up. Ripple executives say they may end up paying $200 million in legal fees to defend the company, and the fees will continue to mount for the foreseeable future. That should be an obvious red flag.
Image source: Getty Images.
So you're probably thinking: But didn't XRP win a major legal victory against the SEC last summer? Yes, that's true. But, at best, it was a partial victory. According to the court ruling, XRP is not a security when offered for sale to individual investors on a cryptocurrency exchange, but it is a security when offered for sale to large, institutional investors.
A lack of 100% clarity means there will likely be more twists and turns in this XRP legal case in 2024. There could be appeals, arcane legal arguments based on cases that have nothing to do with cryptocurrencies, and potentially even settlement offers to stop this case from actually going to trial.
So if you're expecting XRP to win its case outright and then go back to business as usual after a bruising three-year court battle, you may be a bit too optimistic.
XRP's underperformance
Another point of concern is that XRP continues to underperform the broader market. In 2023, for example, XRP skyrocketed in value by more than 80%. Fair enough. But Bitcoin (BTC +0.44%) was up by more than 150%.
CRYPTO: XRP
Key Data Points
And now look at what's happening this year: Bitcoin is up 60% for the year, while XRP is up by only 5%. Their paths are diverging. Maybe XRP gets a lift from any Bitcoin rally this year, but I don't see how XRP pulls ahead of Bitcoin.
XRP / U.S. dollar chart by TradingView
The picture gets even worse if you zoom out and take a big-picture look at XRP's performance over time. Quite simply, the trading chart for XRP looks awful. There's a giant flat line until about April 2017, a massive spike in 2018 that saw XRP go from mere pennies to almost $4, a massive collapse in value almost immediately afterward, another rally to just under $2 in 2021, and then another collapse in value. As a result of its current SEC woes, XRP has been trading for less than $1 for much of the past two years.
Does XRP really have 10x upside?
For many investors, their first exposure to XRP came during the massive 2017-2018 rally, when XRP soared to an all-time-high of $3.84. As a result, they view XRP as a sort of high-octane, high-upside crypto capable of making a 10x move in mere months. This is their "anchor," and they may not listen to other opinions.
That's perfectly OK. As they say, differences in opinion are what make a market. But before you buy into the hype around XRP, do your research.
For example, consider the claim that XRP is a crypto token powering a best-in-class payment network. That might have been true years ago, but up-and-comers such as Solana (SOL +0.13%) are far faster in terms of transaction processing speeds. Ripple can process 1,500 transactions per second, while Solana can theoretically process 65,000 transactions per second.
What about the current hype that XRP is about to get a spot ETF, or that Ripple could be planning an IPO? Well, take a step back and consider what Ripple CEO Brad Garlinghouse had to say at this year's World Economic Forum in Switzerland. As he sees it, the SEC is hostile toward Ripple and XRP, and that means that anything that might require SEC approval -- such as the launch of a new spot ETF -- is extremely unlikely anytime soon.
Is XRP a buy?
For that reason, I cannot recommend XRP as a long-term investment, even at a bargain-basement price of around $0.65.
Yes, I know it's very tempting. Yes, I know the buzz is that XRP could explode in value at any moment. But for now, I'm buying Bitcoin. I view it as a superior long-term investment with considerably more upside potential.
