The most popular cryptocurrency is undoubtedly Bitcoin (BTC), but for a very low-priced alternative, many traders tend to prefer Ripple (XRP). It’s a crypto coin with plenty of trading volume, and Ripple is widely respected by individual investors and some banks.
Source: Shutterstock
Investors need to understand something about Ripple, though. Because it’s low-priced, Ripple is prone to swift moves. That can mean a breathtaking run-up, or a quick plunge. Sometimes, you’ll see sharp moves in both directions within a short period of time.
And indeed, Ripple holders were subjected to a roller-coaster ride during 2020’s final couple of months. It’s been a nimble short-term trader’s paradise, but long-term investors might feel seasick.
Plus, a recent news event has cast a shadow of doubt over Ripple. Nevertheless, an argument can be made in favor of staying the course with this highly affordable crypto token.
A Closer Look at the Ripple Price
If we rewind to September and October, we can paint a picture of calm, steady price action for Ripple. Week after week, the price clung to the 25-cent area.
In hindsight, we might say that this was the calm before the storm. In November, the bulls pushed the price up from 24 cents to 69 cents. It was a terrific time to be invested in Ripple, or so it seemed.
In December, Bitcoin broke through all-time highs multiple times. Yet, this stock still had a long way to go. In fact, Ripple has gone as high as $3.40 in the past. On Dec. 21, the price was only around 52 cents.
Hence, at that time, it felt like the Ripple price could go much higher. However, a price surge wasn’t in the cards, at least in the short term. Starting on Dec. 22, Ripple plummeted to 23 cents in a matter of days.
What happened, and does this spell trouble for Ripple?
A Legal Threat For Ripple
Some folks might not think of Ripple as a company that has a CEO. And yet, Ripple does actually have a CEO, and his name is Brad Garlinghouse.
Unfortunately for Ripple holders, a lawsuit filed on Dec. 22 by the U.S. Securities and Exchange Commission (SEC) alleges that Ripple Labs sold $1.3 billion worth of Ripple over a seven-year period to retail investors, and thereby violated federal securities laws.
Garlinghouse and Ripple cofounder Chris Larsen will be named as defendants, along with the company Ripple. In a statement, Garlinghouse called the SEC’s action “an attack on the entire crypto industry and American innovation.”
So, now we can clearly see why traders dumped their Ripple holdings. The result of this dumpage is that Ripple is back to its support level from the calm, cool months of September and October.
Stay Calm and Hold On
When we see other investors freaking out and unloading their Ripple, it might be tempting to follow the crowd and sell our own holdings.
Divesting your account might not be necessary, however. From a technical perspective, we’ve witnessed quick drops in Ripple before. This type of price action is par for the course in the world of cryptocurrency.
Moreover, outside counsel Michael Kellogg, of Kellogg, Hansen, Todd, Figel & Frederick, offers a compelling argument that the SEC’s legal action is more bark than bite, and could even be legally unfounded:
“Other major branches of the U.S. government, including the Justice Department and the Treasury Department’s FinCen, have already determined that XRP is a currency. Transactions in XRP thus fall outside the scope of the federal securities laws. This is not the first time the SEC has tried to go beyond its statutory authority. The courts have corrected it before and will do so again.”
Only time will tell whether the legal system will work in Ripple’s favor in this case. It does seem, however, that an unfavorable outcome has already been priced in to Ripple ahead of any actual court battle.
The Bottom Line
The correction in Ripple was extreme and could turn out to be a severe overreaction. This presents a possible buying opportunity for bold contrarian investors.
And if you’re already invested in Ripple, be advised that volatility is the norm in the crypto domain. Sometimes, staying calm and holding on is the best policy.
On the date of publication, David Moadel did not have (either directly or indirectly) any positions in the securities mentioned in this article.