A Crypto Bear Market Could Limit a Post-Lawsuit Boost for Ripple

As its developer Ripple remains likely to win the lawsuit filed against it by the Securities and Exchange Commission (SEC), things still look swell for XRP (CCC:XRP-USD). Many traders continue to hold it, ahead of a potential post-lawsuit spike in 2022.

But will it spike in price next year? It’s debatable. You can argue that getting the SEC off Ripple’s back will result in rapid adoption of its native token, causing it to soar in value. Then again, who’s to say this potential isn’t already factored into its token price?

Though down from its 2021 high, it’s still up from where it was trading for in late 2020, when the SEC first charged Ripple Labs with conducting an unregistered securities offering. At today’s prices (around 97 cents per token), it has a market capitalization ($46 billion) similar to that of Solana (CCC:SOL-USD) and Cardano (CCC:ADA-USD).

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It may have big potential for high usage in cross-border payments. Still,  it’s unclear whether this will be enough to send it rocketing past both names on the CoinMarketCap rankings. To a position below the top three cryptos Bitcoin (CCC:BTC-USD), Ethereum (CCC:ETH-USD) and Binance Coin (CCC:BNB-USD).

Worse yet, is the fact cryptos are struggling to bounce back, after sinking on omicron and monetary tightening worries. This also dampens the appeal of buying it now, well ahead of a court ruling.

Will a Ripple Victory Set The Stage for an XRP Rally?

News headlines continue to suggest XRP’s developer will beat the SEC’s case. Even as it seems like the case will never end, Ripple’s CEO, Brad Garlinghouse, believes it will wrap up sometime next year.

So, what does that mean for the price of XRP, commonly referred to as Ripple? Based on the “significant adoption” thesis, which according to FinanceFeeds was laid out by analysts at JP Morgan in November, appreciation potential could be massive.

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Unlike Ethereum or its “killers” like Cardano and Solana, this crypto was designed for one specific use case: cross-border payments. This blockchain alternative offers key advantages to the traditional SWIFT system. Not only is it faster, its transaction fees are substantially lower as well.

I’ll concede it’s a solid argument on the surface. Yet if you dig deeper into it, you can find many holes in this bull case.

Why Post-Lawsuit Gains May Be Limited

A Ripple victory in the courts will certainly bode well for XRP. Its token price would likely move higher on the news. However, these gains may not be as massive as investors bullish on the token assume.

Mostly, because you can argue that a favorable verdict is already priced into XRP-USD. Potential increased usage of the token in cross-border payments may be priced in as well. That explains why it’s still sporting a valuation that makes it one of the 10 most valuable cryptocurrencies.

The crypto nicknamed Ripple could enjoy a double-digit percentage pop following a favorable court ruling. But I wouldn’t count on it surging back toward its 52-week high on this news alone, especially as the crypto market seems more likely to stay in bear market mode.

With the U.S. Federal Reserve now saying it is pulling away the punch bowl, investors are moving out of “risk on” assets, and into safe harbors. This may mean a continued drop for digital assets in the coming months.

Not only may this limit how much XRP gains, if its developer prevails in court, it may continue to drop in price between now and the ruling. With the risk it could slide to 50 or 60 cents before the ruling, what’s the point of buying Ripple today?

The Bottom Line

To some, buying this crypto today may seem like an asymmetric wager. Little downside, big upside. But after its incredible run during 2021, you can argue that a courtroom victory is already priced in. Not to mention, the prospect of XRP-USD becoming widely used in cross-border payments.

With the best case scenario already priced in, Ripple may have only moderate room to run from here. Downside risk may be greater than it appears. Crypto could remain in bear market mode, with digital assets across-the-board continuing to head lower due to changes in the market environment. Any post-ruling pop may fail to counter any additional pullback that happens in the meantime.

Further upside may be more limited than it seems. There’s also the risk it dives further before it (possibly) pops on a favorable court ruling for Ripple. So, with this in mind, be careful when it comes to buying its native token.

On the date of publication, Thomas Niel held long positions in Bitcoin and Ethereum. He did not have (either directly or indirectly) any positions in any other securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.

Thomas Niel, contributor for InvestorPlace.com, has been writing single-stock analysis for web-based publications since 2016.