Should You Buy Ripple (XRP) in 2021?

Compared to Bitcoin, XRP (also known as Ripple, its parent company) is not as well-known to the average person. But you’ll be surprised to know that XRP remains one of the largest cryptocurrencies by market cap, even after going through all of the hurdles of an SEC lawsuit.

In fact, in early April 2021, XRP rallied, rocketing past the $1 mark and almost hitting $2 for the first time since 2018.

So with much new (and renewed) interest, you may well be asking if XRP is a good investment.

Ripple’s technology is open-source, primarily focusing on a digital payment network and a currency exchange network to process financial transactions. The technology facilitates fast exchanges to different forms of currencies and gold through a peer-to-peer decentralized concept. This eliminates potential settlements later between mainstream financial institutions.

Its native token — XRP — is pre-mined, with a supply of 100 billion. It is served as a token to facilitate cross-border currency transfers through the Ripple network. 

As is the case with its fellow altcoin, Ether (and its parent company, Ethereum), many people get the name of the digital currency mixed up with its parent network. In the case of the XRP token, its network is Ripple, an open-source protocol (developed by Ripple Labs, Inc., more commonly known simply as Ripple).

The technology was released in 2012 by its co-founders, Chris Larsen and Jed McCaleb. Ripple’s ultimate business goal is to create both a fast and seamless payment solution, and a remittance system to replace the traditional SWIFT system for international money and security transfers.

The financial world is unpredictable. Every investment has its fair share of ups and downs. And crypto assets like XRP are no exception.

XRP’s low price has opened up an affordable entry and investment opportunity with higher returns. In addition, the use of XRP across the Ripple network for ultra-quick currency transfers at a lower fee further strengthens its position. The vast acceptance of RippleNet at over 100 multinational banks increasingly proves its credibility.

Although we think XRP is a good investment overall, investors definitely need to weigh the pros and cons. It may not be suitable for everyone to invest in XRP. Ultimately, it depends on your appetite for risk.

Currently, settlement systems for transactions, such as SWIFT and PayPal, generally use U.S. dollars as a common currency for conversion. This incurs money and time. Ripple aims to use XRP to act as a mediator that settles almost instantly, at a fraction of the cost. It does this through RippleNet, a liquidity solution using XRP that has been developed to make these lengthy and expensive transactions a thing of the past.

As Ripple puts it:

Tom in the U.S. wants to send $1,000 to Rachel in the U.K. Traditionally, this would have involved going to the bank and filling out various forms. After having done that, it would have taken up to three days for the transfer to go through, costing perhaps $10–$20. 

This is because of the liquidity costs for the financial institutions administrating the exchange. Pre-funded Nostro accounts would be needed on either side of the transaction in order to exchange the currency (in Tom and Rachel’s case, from USD to GBP). Holding these accounts entails liquidity costs for the bank, which are ultimately passed on to Tom.

However, if this payment were made using XRP on the Ripple network, the outcome would be considerably more favorable for Tom.

It would take away the need for pre-funded Nostro accounts. Instead, the bank could transfer USD to XRP, then XRP to GBP, at a fraction of the time and cost.

In the end, Tom saves three days and $20 in processing fees, as the Ripple network only takes about 10 seconds to process the transaction. The fee on the Ripple network will be less than $0.01, though the bank may set a fee themselves. It will still be nowhere near the fee of a traditional bank transfer.)

XRP is indeed an altcoin, but it differs from LTC, ETH, XLM and others in significant ways. Several factors that make XRP unique are its technology, concept, and execution.

Unlike Bitcoin and other cryptocurrencies, XRP doesn’t operate on a blockchain. Instead, Ripple uses its unique technology, the Ripple Protocol Consensus Algorithm (RPCA). Its distributed consensus mechanism verifies transactions on the network.

For example, a participating node can verify the authenticity of a transaction without a central authority by using a poll. It works similarly to a blockchain, though, in that there has to be a consensus for transactions to be verified on the network.

Despite the debate as to whether or not XRP is centralized, XRP is in fact decentralized. Ripple uses a peer-to-peer decentralized concept, relying on nodes to process transactions through a voting system. Although it does not operate via blockchain, the consensus protocol is similar. But the nature of the consensus system uses a negligible amount of energy compared to Bitcoin.

You simply can’t mine any XRP. Although there is a limited supply of the currency, XRP isn’t created through the actions of miners. Instead, it’s pre-mined and capped at 100 billion tokens. As of June 2021, there are already more than 46 billion tokens in circulation. The remainder of the XRP tokens are released periodically by Ripple from escrow.

On December 22, 2020, the United States Securities and Exchanges Commission (SEC) filed a lawsuit against Ripple Labs, Inc. and two of its major stakeholders, cofounder Christian Larsen and current CEO Brad Garlinghouse. The lawsuit centers around allegations Ripple raised over $1.3 billion “through an unregistered, ongoing digital asset securities offering.”

There has been much controversy about the lawsuit, focusing on the question of whether XRP is a security or simply a cryptocurrency. If it is a security — as the SEC alleges — then it must be registered with them as one. The SEC has never classified the top two cryptocurrencies, Bitcoin and Ether, as securities. However, they are decentralized and not owned by one entity. This is not the case with XRP.

Ripple attacked the allegations. In a highly unusual move, the company announced on December 21 that they were to be sued, a day before the SEC’s announcement. In a statement contesting the allegations, the company said: “For eight years, we’ve built products that help hundreds of customers solve pain points around global payments. We will defend our company and [we] look forward to settling this matter in court to finally get clarity for the U.S. crypto industry.”

This lack of clarity in the U.S. crypto industry, Ripple contended, contrasts with other countries such as the U.K. and Germany. Ripple maintains that this ambiguity is hampering the development of crypto in the company’s home country. Indeed, as a result of the lawsuit allegations, the price of XRP tanked. After being at the $0.55 mark before the lawsuit announcement, XRP’s price tumbled to $0.19 by December 30. However, in April 2021, Ripple saw some victories in their court battle, which some analysts have pointed to as the reason behind the ensuing price surge of over 40%.

The victories came from the fact that the SEC was not permitted to disclose the financial records of two key Ripple Labs, Inc. executives, including CEO Brad Garlinghouse. Additionally, Ripple was allowed access to a previously secret SEC discussion concerning Ripple and the case.

To date, a host of motions and memorandums have been exchanged. However, as of yet there is no clear winner.

Since launching in 2013, XRP has seen some crazy price fluctuations in its history. Up until 2017, its price had barely managed to reach $0.01. But in March and April of that year, its price began to rise significantly. By the end of April, it was up to $0.05. And it didn’t stop there — not by a long shot.

By the end of May 2017, XRP’s price was up to $0.25. It retraced slightly in the coming months, but then rocketed as 2017 closed and 2018 dawned, just as other cryptocurrencies (most notably Bitcoin, which peaked at nearly $20,000) did at this time in the infamous crypto bull run. Its price peaked at $3.84 on January 4, 2018. 

But within two weeks, XRP had lost more than half its value. By early 2019, it was around the $0.30 mark. In late 2020, it went on a bull run, hitting nearly $0.70, but then crashed due to the uncertainty over the SEC lawsuit. Since then, its price has stabilized somewhat, hovering around the $0.55 mark at the end of March.

In early April 2021, XRP shot past the $1 mark for the first time since 2018, nearly hitting the $2 mark. By mid-May, the price was still hovering around $1.50, after which it retraced, following the recent Bitcoin dip amid signs of a bear market.

Where can the price of XRP go from here?

With its price breaching the $1 mark for the first time since 2018, can it surpass its all-time high of $3.84 in the short term? Some analysts, such as Peter L. Brandt, assert that its recent price formations indicate that it’s very possible:

On the other hand, some analysts point out that XRP’s price remains in doubt and is quite likely to keep falling as bears target the next key support level at $0.6493 as the SEC lawsuit continues.

Looking longer-term, predictions vary between analysts. Some maintain that if XRP continues its road to wider adoption, its price will grow steadily, with a conservative estimate of $10 by 2030. Other predictions vary between $17 and $20 in the foreseeable future.

Of course, no one has a crystal ball, and there are many factors involved in determining XRP’s future price.

Industry analysts have highlighted some correlations between the price of XRP and other cryptocurrencies. Pierce Crosby, General Manager of TradingView, told Cointelegraph in February 2020 that, due to Bitcoin’s dominance over the crypto market, such correlation is inevitable:

Some factors cannot be predicted and are thus beyond the control of the markets. As world markets crashed in March 2020 during the onset of the COVID-19 pandemic, so did the prices of many cryptocurrencies, including Bitcoin and XRP. The price of XRP dropped to around $0.15, although it subsequently recovered. However, its recovery was nowhere as marked as Bitcoin’s. And yet, a year on from that, it was seeing price gains even larger than Bitcoin’s. Again, as you probably know by now, the world of crypto can be crazy and unpredictable even at the best of times.

There are other factors that can affect XRP’s price which we’ll look at in the next section. First up: the pros and cons of investing in XRP. 

XRP’s technology allows for almost instantaneous, negligibly cheap financial transactions (costing less than $0.01). It has tremendous scalability, able to process 1,500 transactions per second, which is over a thousand times faster than Bitcoin.

To demonstrate, TechCrunch founder Michael Arrington in October 2018 allegedly sent $50 million in XRP and it “took like 2 seconds and it cost 30 cents.” Impressive, no matter how you look at it.

For these reasons, XRP has gained the backing of many multinational banks and financial institutions, such as JP Morgan, Santander and Bank of America. Notably, in June 2019, a strategic agreement was signed between Ripple and global money transfer giant MoneyGram. Such agreements will definitely be interpreted by potential investors as an indication that XRP is going places. 

Also, as with any cryptocurrency, when you invest in XRP you’re not just investing in the currency. You’re investing in the company. Ripple Labs, Inc. is a company with over 500 employees, ranging from those promoting the currency in marketing to others who work on the technology side. If the company continues to grow and does well, then the currency will surely follow suit.

A lot of the beefs that people in the crypto community have with XRP are for precisely some of the above reasons: XRP is seen by some as a centralized banker’s currency. The very fact that Ripple cooperates with financial institutions is said to contradict Satoshi Nakamoto’s reason for creating Bitcoin in the first place: the desire for a decentralized currency, away from the control of banks.

Another criticism XRP has attracted is due to the fact that it can’t be mined, like Bitcoin and many other cryptocurrencies. The advantage of having a mining-based cryptocurrency is that market conditions can at least partially help determine the amount of exertion expended in creating new blocks on the blockchain. This effort, in turn, can affect prices. If the price of a cryptocurrency is low, then less mining generally takes place because it is not cost-effective to do so (and vice versa for the opposite scenario). 

Although there are accusations that Ripple could have some malicious intent in holding these coins, the company has insisted they have justifiable reasons for doing so. They release a certain amount of coins every month from their ledger escrows, up to a maximum of one billion.

In reality, though, significantly fewer coins are released, with the unused amount being rolled over to the next month’s allotment. This is done, Ripple maintains, so there isn’t a sudden upsurge in the supply of XRP and the price doesn’t crash. This assertion can be seen as a clear positive, since investors are less likely to see themselves liquidated due to a sudden market move.

In response to the concerns about centralization, Ripple announced their decentralization strategy in May 2017, with the aim of making Ripple’s XRP Ledger more decentralized than Bitcoin’s. Noted at the time was the potential vulnerability of “Bitcoin, which at the time of writing is 51% controlled by just five mining pools. This means the largest five pools working together could achieve a 51% attack.” An update was released by Ripple in October 2017, which stated:

“Ripple remains committed to decentralizing the XRP Ledger and divesting itself of operational control. This multi-phase approach does that, but is intentionally conservative and has been devised with a single goal in mind: to ensure the reliability and stability of the network during the transition period to a fully decentralized and distributed architecture.“

Since then, Ripple has re-emphasized the decentralized nature of XRP, saying:

If you’re prepared to HODL and play the long game, then XRP could well be a worthy investment. It is also still cheap, so it’s perfect for first-time investors. It certainly looks like a bright future could be on the horizon for the cryptocurrency, with financial institutions needing more and more liquidity to complete financial transactions – and, as explored in this article, XRP could go on to provide some of the solutions to the problems associated with that issue. 

Interestingly, David Schwartz, CTO of Ripple Labs, Inc., said at the 2019 Future of Fintech conference in New York that financial institutions are “extremely conservative” and “slow-moving.” This could go some way toward explaining that, while there has been much interest in XRP, actual adoption has been a slow process — and, as such, the price has remained rather stagnant for some time.

However, its price increased massively in value (over 35,000%) during the infamous crypto bull run in 2017. If the currency continues to gain traction, especially as it has done in the spring of 2021, its mainstream adoption will become more widespread. If that is the case, and confidence grows in the currency, there’s no reason to think XRP can’t surpass its all-time high of $3.84.

Of course, a lot of this may still rest on what transpires with Ripple’s legal battles. Nevertheless, in view of XRP’s unpredictable and surprising price history, it can definitely be a worthy addition to your investment portfolio.