Is Ripple (CCC:XRP) a “buy the dip” situation on a pullback after going parabolic? Not so fast! The explosive price action in this fading altcoin had nothing to do with its underlying fundamentals. Instead, you can chalk it up to “pumping and dumping.”
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With the Gamestop (NYSE:GME) “short squeeze saga” now in the history books, some retail traders have shifted to hyping up altcoins online for fun and profit.
As a result, Ripple went from 25 cents to prices above 70 cents, before sliding back to around 41 cents today.
This roller coaster ride has been a windfall for those who owned it ahead of time. But, for those who dive in now? Don’t count on it. Just as with the brief spike in heavily shorted stocks, this trend will fade fast. Once it does, it is more likely than not XRP will continue sliding lower than the 25 cent price that kicked this run off.
Between its ongoing troubles with the Securities and Exchange Commission (SEC), and the potential for another “crypto crash,” the downside risk is massive from here.
Already suspended on popular crypto trading platform Coinbase, this formerly-ascendant altcoin is fast headed to irrelevance. If you continue to hold it, take advantage of the recent madness and cash out now. Otherwise, read the room, and stay away from this cryptocurrency.
Why Ripple Can’t Rally Its Way Out of Trouble
The big spike in XRP may help some owners take a profit or minimize losses, but other than that, recent headline-making moves don’t help solve the underlying issues with this controversial cryptocurrency.
As I discussed last month, Ripple Labs is under investigation by the SEC. “Under investigation” is not the same as being found guilty, but it’s questionable whether XRP can get out of this watchdog’s crosshairs unscathed.
Putting it simply, cryptos like bitcoin (CCC:BTC-USD) avoid being classified as unregistered securities offerings because they’re decentralized. Unfortunately, that’s not the case with XRP. Ripple Labs controls the supply.
This means the SEC’s allegations might stick. Only time will tell whether this will end in a fine or in an acquittal, but the damage has already been done.
Coinbase suspended trading in XRP, and with bitcoin and other up-and-coming altcoins like Ethereum (CCC:ETH) seeing more demand among both retail and institutional investors, it’s looking to be game over for Ripple.
Stick to Cryptos the “Smart Money” Is Chasing
The inflow of institutional money into cryptocurrencies is one of the most compelling reasons to invest in this asset class. It’s part-and-parcel of the bull case for bitcoin. While I would be cautious about diving into Ethereum as it trades near all-time highs, the increased “smart money interest” in that leading crypto may make it a great buy-and-hold opportunity down the road.
Unfortunately, Ripple doesn’t have the same factors going for it. Given the SEC investigation and subsequent Coinbase delisting, don’t count on institutional interest or even retail interest swooping in to save it. Without a catalyst like those to take it higher, there’s no reason to take a gamble at today’s prices.
So, without a reason to go higher, should those who own it cash out ASAP? Yes. Sure, this crypto could see another massive spike, if speculators online hype it up again. Unfortunately, not only can you not anticipate when the next “pump and dump” is going to happen, but a looming “crypto crash” could accelerate a decline in its price.
The XRP Rally Is Fading Fast
Over the past few months, we have seen renewed retail speculation in cryptocurrencies. To some extent, this clouds the “increased smart money allocation” thesis I highlighted above. In other words, it’s hard to tell whether prices are surging because institutional money is flowing in them at a greater pace or if retail investors are buying in anticipation of big institutional inflows.
If it’s the latter, there may be little besides speculation holding up prices right now, making them vulnerable to a crash. While XRP hasn’t surged that much relative to its more popular peers, across-the-board panic selling could send it to significantly lower prices. Especially when you factor in its diminished liquidity, due to its suspension on Coinbase.
Bottom line: with no catalysts to send it higher, but plenty in play to sink it lower, stay away from Ripple at all costs.
On the date of publication, Thomas Niel held a long position in bitcoin.
Thomas Niel, a contributor to InvestorPlace, has written single stock analysis since 2016.