After a positive court ruling in July, it looked like XRP was going to skyrocket in price. After more than two years of waiting for a favorable resolution of the case lodged by the Securities and Exchange Commission, many crypto investors thought XRP(CRYPTO: XRP) was a shoo-in to soar past the $1 mark this year.
But XRP (formerly known as Ripple) has now given up nearly all of its recent gains. Over the past 30 days, XRP is now down 25% and trades for about $0.54. So what happens next with XRP? Below are both a bear case and a bull case scenario for XRP.
Bear case scenario
Obviously, it's time to forget about XRP as a short-term momentum play. Crypto investors who tried to ride the wave of optimism surrounding the SEC court ruling by buying XRP in July and August ended up getting burned. While there are signs that overall sentiment about XRP has turned positive, it now looks like the path to $1 is going to be much more difficult than originally envisioned. XRP spiked in price in mid-July, but is now back almost exactly where it was at the beginning of the summer.
From my perspective, the long-running SEC court case took the wind out of the sails for XRP. Back in December 2020, when the SEC filed its case, XRP was still a leader in the crypto payments market. Its core technology (the Ripple payment network for cross-border payments) was arguably best in class. It enabled cheap, efficient, and fast cross-border financial transactions. And XRP was still lining up key financial services partners that sensed that blockchain-enabled payments -- in some shape or fashion -- were the future of the payments industry.
Since 2020, however, a number of blockchain rivals have emerged promising even faster and cheaper transactions than XRP. Moreover, some early partners of XRP -- such as MoneyGram International -- decided to cut ties, presumably as a result of the legal fallout from the SEC case. And that has left XRP more vulnerable than ever before to new competition. Making things even more challenging, the SEC now says it plans to appeal the July court ruling, meaning that XRP may not be out of the woods quite yet in terms of regulatory risk.
Bull case scenario
That said, XRP's Ripple network does have proven utility as a payments facilitator. Even though XRP has lost some financial services partners, it continues to gain new ones. Recently, for example, Western Union(NYSE: WU) said that it was looking into possible integrations of XRP into its existing payment system. A new Western Union project, powered by XRP blockchain technology, could make sending money abroad easier, faster, and cheaper than ever.
Image source: Getty Images.
Moreover, XRP could benefit from some of the macro trends taking place in the international payments arena, including de-dollarization and the launch of new central bank digital currencies (CBDCs). If XRP can integrate into different de-dollarization and CBDC initiatives taking place around the world, that would be huge for its long-term growth prospects.
For example, the BRICS (Brazil, Russia, India, China, and South Africa) emerging markets bloc has been talking up the creation of a digital payments system that would enable rapid, cross-border transactions between BRICS nations without the need for the U.S. dollar. The thinking is that XRP's core blockchain technology would be a perfect fit for just such a system. As a result, some super-bulls are already talking up the potential for XRP to soar past its all-time high of $3.84.
Can XRP become more than a niche player?
But unless something truly extraordinary happens, I see XRP becoming a niche player in the financial services industry, focusing primarily on areas such as cross-border remittances. Granted, digital remittances are a potential $135 billion market opportunity, but wouldn't you rather just buy Western Union and not deal with all the risk and volatility of crypto? After all, many of the emerging markets projects that could feature XRP at some point in the future still seem too speculative.
XRP is still on my crypto watch list, but at this time I can't recommend it as a long-term buy. From my perspective, XRP still has a long uphill climb ahead, and there are plenty of other altcoins trading for less than $1 with superior long-term growth prospects.
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Dominic Basulto has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends XRP. The Motley Fool has a disclosure policy.
