The rally in cryptocurrencies can be mind-boggling. A $1,000 bet on Dogecoin at the beginning of fiscal 2021 would be worth enough to buy a Tesla Model Y now. While it can make sense to go with the market mood and euphoria, the amount of risk needs to be monitored.
Of course, position sizing is critical. I would not go big Ripple, but I would put in some dollars that I can afford to lose. And that’s a relative term.
As a matter of fact, Ripple has surged by 617% in the last year. Even with the headwinds of the Ripple SEC lawsuit. I believe that there are two reasons for Ripple surging higher.
First and foremost, the cryptocurrency space has witnessed a bull market. Ripple has benefited from the growing interest in crypto and the broad market rally.
Furthermore, it seems that the markets are gradually discounting the point that there will be a positive outcome to the SEC lawsuit. If this indeed happens, XRP can go ballistic.
Ripple and Centralization
It seems that the centralized and de-centralized world is getting closer. Coinbase (NASDAQ:COIN) is for trading decentralized currencies or cryptocurrencies. However, COIN stock is now listed in a centralized exchange.
The Financial Times reported recently that regulators will examine Binance’s foray into equities. Binance seems to be preparing for any potential regulatory hurdle by hiring Brian Brooks, a top bank regulator. Brooks was an acting head of the Office of the Comptroller of the Currency under the Trump administration.
This also is a merger of centralized and decentralized. Binance exchange listing equity tokens that are regulated. The decentralized exchange is hiring a new chief executive from the regulated world.
Recently, Gary Gensler was sworn in as a Member of the Securities and Exchange Commission. Gensler has taught a course on Blockchain at MIT. Ripple holders are expecting that the recruitment of Gary might be a positive catalyst in the SEC lawsuit.
In May 2018, Gensler commented that “Bitcoin is not a security, but that ether and ripple — two of the other most notable cryptocurrencies — likely are securities.”
Gary also believes that “many cryptocurrencies, “probably well over a thousand,” are operating outside of U.S. law and will have to come into regulatory compliance.”
If Gary continues to hold this view, it seems that Ripple might be regulated, eventually. This might hold true for other cryptocurrencies as well.
All this does not imply that there is an immediate end to the lawsuit. The SEC has continued to press ahead with the litigation. However, there might be a possibility of a faster than expected resolution.
Regulated or de-regulated, if Ripple survives this headwind, the cryptocurrency is positioned to trend higher in the coming quarters.
In last month’s hearing on the Ripple case, Judge Sarah Netburn opined that “my understanding about XRP is that not only does it have a currency value but it has a utility, and that utility distinguishes it from Bitcoin and Ether.”
In February 2021, former SEC chair Mary Jo White defended Ripple and opined that the SEC is legally and factually wrong.
If these end up being the prevailing views, it might be good news for Ripple.
Overall, the panic selling in Ripple translated into an opportunity for stellar returns in the last year. I would not be surprised if the cryptocurrency delivers multi-fold returns from current levels if the lawsuit outcome is against the SEC. Therefore, some speculative position in Ripple can be considered.
On the date of publication, Faisal Humayun did not have (either directly or indirectly) any positions in any of the securities mentioned in this article.
Faisal Humayun is a senior research analyst with 12 years of industry experience in the field of credit research, equity research and financial modeling. Faisal has authored over 1,500 stock specific articles with focus on the technology, energy and commodities sector.
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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.