With Ripple This Hot, Expect Volatility as Well as Opportunity

Investing in cryptocurrencies, such as Ripple (CCC:XRP) has been profitable so far in 2020. For XRP, most of the gains have come in November. It started the year shy of 20 cents and November around 25 cents.

To the delight of investors, on Nov. 24, the cryptocurrency shot past 73 cents. Now Ripple is flirting with 60 cents.

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Put another way, the proverbial $1,000 invested in Ripple in January would now be worth around $3,000.

Over 1,600 cryptocurrencies are currently available on the market. Such a wide range of offerings can make it difficult for the newbies to understand how to trade and which cryptocurrency to choose.

Yet, seasoned followers of cryptocurrencies realize that Bitcoin (CCC:BTC), whose price trajectory has also been positive year-to-date, typically leads the cryptocurrency market.

BTC started 2020 shy of $7,000 and November around $13,700. Now it is slightly above $19,000. Although less than the impressive gains in Ripple, $1,000 invested in Bitcoin in January would still be worth close to $2,000.

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The Crypto Market Is Growing Fast

Today’s article, therefore, takes a closer look at the world of cryptocurrencies to discuss what investors can expect from Ripple in the weeks ahead. Given the recent run-up in price XRP is likely to be volatile in December as some investors may decide to take money off the table.

However, for long-term investors Ripple may offer a robust alternative crypto asset as part of a diversified portfolio.

Although it is hard to pinpoint to the exact reasons behind this recent rally in the price of Ripple and other cryptocurrencies, there are several factors to consider. Covid-19 has meant increased digitalization in many aspects of our lives, including increasing transactions in e-commerce as well as digital wallets and payments.

Yet even before the pandemic, the world of finance and technology (or “fintech”) had been transforming. Since the great recession of 2008/09, there has been a global loss of confidence in the central bank based, fiat currency centered, interconnected financial system. In fact, Bitcoin started life in 2009.

“The policy uncertainty, market volatility and change in investor confidence in the financial system, coupled with recent developments in blockchain technology has led to the invent of, and (very quickly) increasing demand for, cryptocurrencies,” according to recent academic work published in the Journal of Risk and Financial Management.

RippleNet is a global decentralized network, connecting a diverse ecosystem of payments players. XRP is the native currency of the Ripple protocol. Using advanced blockchain technology, RippleNet operates as a cryptocurrency platform allowing people to transfer money from bank account to bank account, person to person, securely and fast.

Over 300 financial institutions utilize the Ripple network, including companies such as American Express (NYSE:AXP), Moneygram International (NASDAQ:MGI), PNC Financial Services (NYSE:PNC), and Banco Santander (NYSE:SAN).

These banks “can use XRP for sourcing liquidity in cross-border transactions, instead of pre-funding—ensuring instant settlement, lower exchange fees and more efficient use of working capital.” Ripple in time aims to become a replacement for SWIFT — the current standard for international bank wires.

Finally, it’d be important to highlight that in 2019, Ripple invested in MGI shares. It has recently sold about a third of its investment with significant profit.

So Should You Invest In Ripple Now?

Prices of cryptocurrencies like XRP are volatile. Recent academic work published in October 2002 has analyzed the prices and returns of several leading cryptocurrencies. The authors conclude, “From a historical time-series perspective, Ripple is hence the most volatile of all the cryptocurrencies under consideration.”

Given the recent increase in price, XRP will possibly be volatile in the coming days. Therefore, short-term traders should proceed with caution.

If you are a long-term investor with 2-3 year time-horizon, you could consider buying the dips, especially if the price decreases below 50 cents. As RippleNet increases its partnership with global financial institutions, it is likely to create value for XRP investors.

Are you interested in blockchain technology but not ready to commit capital into a single cryptocurrency like Ripple? Then you could also consider investing in an exchange-traded fund (ETF) like the Reality Shares Nasdaq NexGen Economy ETF (NASDAQ:BLCN). The fund, which started trading in 2018, gives access to firms that develop or utilize blockchain technology.

Finally, an ETF that has Moneygram International, an important strategic partner to RippleNet, could also appeal to some investors. Examples would include Amplify Transformational Data Sharing ETF (NYSEARCA:BLOK) or the iShares Micro-Cap ETF (NYSEARCA:IWC)

On the date of publication, Tezcan Gecgil did not have (either directly or indirectly) any positions in the securities mentioned in this article.

Tezcan Gecgil has worked in investment management for over two decades in the U.S. and U.K. In addition to formal higher education in the field, she has also completed all 3 levels of the Chartered Market Technician (CMT) examination. Her passion is for options trading based on technical analysis of fundamentally strong companies. She especially enjoys setting up weekly covered calls for income generation.