XRP Is a Cheap Crypto Because Risk Outweighs Reward

For novices, the world of cryptocurrencies is undoubtedly intriguing and often confusing. Take the case of Ripple (CCC:XRP). A quick glance of the largest digital assets by market capitalization shows XRP occupies an enviable perch.

As of Jan. 20, it’s the fifth-largest trailing only bitcoin, ethereum, tether and polkadot. This is where things getting confusing for rookie crypto investors. Ripple and XRP are used synonymously, but they aren’t the same thing. Ripple is a company behind a decentralized instantaneous payments platform and XRP serves as the currency foundation of the platform.

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“With the most advanced blockchain technology for global payments, financial institutions are able to expand into new markets around the world and even eliminate pre-funding by leveraging the power of XRP through RippleNet’s On-Demand Liquidity service,” according to the company.

Don’t doubt the corporate aspect of Ripple. Previously, it’s been viewed as a fintech darling and there have even been rumors of an initial public offering (IPO). Generally speaking, those are positive traits, but that’s not currently the case with Ripple and a recent spate of controversy is borne out by XRP’s price.

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Examining XRP with Caution

By design, XRP isn’t as volatile as bitcoin, ethereum or some cryptocurrencies. It’s also one of the “penny stocks” of the digital currency space. Those deep five-figure price tags you see with bitcoin? Forget about it with XRP, which traded around 29 cents on Jan. 20.

As is often the case regardless of asset class, investors love things with low prices. And as is often the case, many of these supposedly cheap assets aren’t great values and arrived at this rock bottom prices for negative reasons. That’s true of XRP.

Last month, the Securities and Exchange Commission (SEC) sued Ripple, alleging the blockchain payments company conducted an unauthorized $1.3 billion securities offering. The debate here center’s around the SEC’s treatment of XRP. The commission believes it’s a security and as such, should be registered. Ripple says XRP is a currency and therefore doesn’t need to be registered with regulators.

This controversy isn’t going to die quickly because the SEC is likely to sink its teeth into the fact that Ripple previously sold XRP in block at specified periods of time, akin to what a public company does in an equity offering.

Tussling with the SEC is already taking a toll on Ripple and XRP. There’s speculation the company is considering moving overseas and, two days before Christmas, the currency sank almost 32%.Then came news that some well-known cryptocurrency exchange operators will limit XRP. For example, Coinbase, one of the largest companies in the group, put XRP into “limit only” on Jan. 19.

Add to that, Ripple co-founder Jed McCaleb recently took a 25-day leave – interesting timing to the say least – and he’s been a rampant sell of the currency.

Too Many Potential Pitfalls

The full extend of Ripple’s regulatory woes isn’t yet known, but investors will get a clearer picture to that effect on Feb. 22 when the company has its first pretrial conference in the Southern District Court of New York.

There’s potential for headline risk emanating from that event. Likewise, President Biden’s choice for SEC chair, Gary Gensler, is a wildcard investors mulling XRP need to consider.

Previously head of the Commodities Futures Trading Commission (CFTC), Gensler earned a reputation for being tough but fair and cleaning up the wild west aspect of the derivatives market following the global financial crisis. His time at the CFTC drew praise from many senators still serving, indicating his appointment is essentially a foregone conclusion.

It’s not yet clear what Gensler means for XRP, but he will soon lead the agency targeting Ripple. Add up everything mentioned here and investors would do well to explore other cryptos and wait for the smoke to clear with XRP.

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

Todd Shriber has been an InvestorPlace contributor since 2014.