Up front, let’s be clear. When it comes to cryptocurrencies like Ripple (CCC:XRP-USD), certainty is impossible.
It’s nearly impossible to define exactly what a cryptocurrency should be worth. It’s nearly impossible to understand what drives short-term moves. Most of us are left using tools from the equity market bag — “market capitalization” or chart analysis — that don’t snugly fit in the crypto world.
But one thing we do know about Ripple is that it’s been on absolute fire. As of this writing, XRP-USD sits at $1.36. Even though that’s down from $1.90 less than three weeks ago, the price still represents over 470% gains in 2021 alone.
What’s particularly surprising about the rally is that seemingly everything has gone wrong for Ripple, rather than right.
A huge court case hangs over the company. A major holder reportedly is selling aggressively. Cryptocurrencies more broadly took a big hit last month; XRP joined in the sell-off but sharply rebounded. Even reports of a possible initial public offering for the coin’s developer don’t necessarily seem like good news.
Yet here we are. The question is whether there’s a somewhat hidden logic underneath the trading — or whether Ripple is another beneficiary of a frothy, even dangerous appetite for seemingly every ‘altcoin’ out there.
The Court Case
The simplest answer for the rise in Ripple of late is that its court case is going well.
The U.S. Securities and Exchange Commission tanked XRP in December when it announced a suit against Ripple Labs, the developer of the coin, along with individual executives. The SEC claimed that Ripple Labs, in selling XRP, had engaged in an unregistered offering of securities. For its part, Ripple Labs maintained that Ripple remains a currency.
XRP plunged on the news. Major exchanges including Coinbase (NASDAQ:COIN) pulled the coin from their offerings.
But with the lawsuit underway, Ripple Labs seems to be scoring some wins. At the least, social media seems wildly optimistic. The timing of the XRP rally — which accelerated sharply in early April — seems to line up.
That said, it’s difficult to peg the court case as the only reason for the gains. Bear in mind that before the SEC lawsuit, XRP-USD traded around 60 cents. Go back to October and Ripple was worth about a quarter.
Meanwhile, it’s also a bit early for celebration (or to listen to legal ‘experts’ on social media). The SEC has real power. The case has a long ways to go. And the court case isn’t the only thing working against XRP at the moment.
A Whale Exits
One of Ripple’s biggest holders continues to sell, according to one analysis.
Jed McCaleb was the co-founder and chief technology officer of Ripple Labs when the coin was developed. He’s been selling 17 million to 18 million XRP each day of late, garnering over $20 million daily in the process.
To be fair, this isn’t like an insider or even a former insider dumping shares of a company. McCaleb since has moved on to Stellar and its coin, Stellar Lumens (CCC:XLM-USD). The sales appear to have been going on for some time, so there’s no thought that McCaleb has some confidential information about the SEC case or about Ripple Labs itself.
Still, the amount of selling is material, and in normal markets would at least seem to provide a brake against a rally. Yet XRP has bottomed and climbed sharply even into the wave. The buying strength of the crowd simply may be enough to overcome the selling from McCaleb’s account.
The Ripple Labs IPO
The optimism toward the SEC case may have received some help based on comments from a key Ripple Labs shareholder. The head of SBI Holdings (OTCMKTS:SBHGF), Yoshitaka Kitao, said on his company’s earnings call that Ripple Labs would look to go public once the case was resolved.
Given that the case could in theory drag on for years, the comments suggest that Kitao believes a resolution might arrive sooner than that.
It’s an interesting argument as to whether a Ripple Labs IPO would be a good thing for XRP. It might draw some incremental institutional interest. But it might also highlight the core problem for crypto adherents: the centralized nature of the coin. An IPO that makes insiders rich is precisely the outcome that decentralized currencies are trying to avoid.
Now, I had thought that the lawsuit might have a similar effect, as it detailed nine-figure paydays for Ripple Labs insiders. So far, crypto investors have taken Ripple’s side. One of many interesting questions about the future XRP price is whether that sentiment will hold without the SEC as an opponent.
On the date of publication, Vince Martin did not have (either directly or indirectly) any positions in the securities mentioned in this article.
After spending time at a retail brokerage, Vince Martin has covered the financial industry for close to a decade for InvestorPlace.com and other outlets.