This crypto is pumping massively right now, but is it safe to buy? | The Motley Fool

One of the hottest cryptocurrencies right now is XRP (XRP -8.70%). It is up over 30% in the past seven days and around 50% since mid-June, when it was trading at just $0.30. On social media, the “XRP Army” is mobilizing, with supporters convinced that this former crypto darling is on the cusp of a new bull cycle.

So why all the excitement? There is growing speculation that the Securities and Exchange Commission (SEC) will finally settle its longstanding case against XRP in mid-November. All signs now suggest that the decision will be in favor of XRP, and that is why XRP is pumping right now.

Is XRP a security or a crypto?

The fundamental question in the SEC case is whether XRP is a security or a crypto. In its December 2020 lawsuit, the SEC claimed that XRP is a security, despite all the signs seeming to suggest that XRP is a crypto. The general consensus now is that if an asset can be shown to be a simple replacement for a traditional fiat currency (eg the dollar), then it is not a security. However, if an asset is an “investment contract” in which people invest money in a joint venture with the reasonable expectation of making a profit together, then it is a security. If XRP is considered a security, that would be bad news and XRP could face huge fines or penalties. However, if XRP is considered a crypto, it could finally pave the way for the future growth of its Ripple payment network.

Image source: Getty Images.

The SEC lawsuit has cast a pall over XRP over the past 24 months and made many people hesitant to buy. Some cryptocurrency exchanges, such as Coinbase global, do not currently offer trading in XRP, as they have no desire to be caught up in the legal hubbub. If you are an XRP investor, the good news is that the regulatory landscape has changed a lot since December 2020. The growing consensus in Washington, DC these days is that cryptos are not securities and should not be regulated. by the SEC. .

How long can this rally last?

This could be the crypto market’s equivalent of a “relief rally” for XRP. In stock markets, a “relief rally” typically occurs when anticipated negative news ends up being positive, or at least not as bad as originally expected. This seems to be the case with XRP, as no one really expected XRP to win its legal battle with the government. But these relief rallies rarely last long and can be easily derailed.

As Ripple CEO Brad Garlinghouse pointed out, even if there is a motion for summary judgment in mid-November, it could take between two and eight months before a final decision is announced. So beware of anyone who says that the XRP settlement will be finalized by the end of the year.

Another red flag for XRP is that the controversial question of “Is it a security or a crypto?” seems to keep coming back these days. Currently, Coinbase is facing similar claims that it mistakenly listed “securities” on its platform rather than “cryptos.” And even Ethereum recently came under the microscope. Following The Merge, which introduced staking for Ethereum holders, the SEC is now saying that Ethereum looks and acts much more like a security than a crypto. I disagree, but I’m not the one making the decisions in Washington these days.

Is XRP safe to buy?

I’m not sure everything will be back to normal for XRP and Ripple as soon as the lawsuit is resolved. I love all the energy and passion of the XRP army, and I regret selling the last of my XRPs in 2021 for fear that it would eventually drop to zero. However, it looks like a lot more needs to be done for XRP. It worries me when I see people on Twitter saying they hope to retire on their XRP holdings.

Even the most optimistic XRP investors must recognize that the playing field for Ripple is much more crowded in 2022 than in 2020. There are now other layer 1 blockchains that can offer the same kinds of capabilities, including the archrival Stellarwhich has increased by 15% in the last seven days.

So, buyer beware: if you are considering getting into XRP now, there is still a lot of risk involved. I would wait to see if this rescue rally has legs. Investing in crypto is risky and volatile enough, and XRP is at the center of one of the most contentious regulatory issues in the crypto world today. XRP either goes to the moon or it goes to zero. Unfortunately, one of these scenarios is more likely than the other.

Dominique Basulto has positions in Ethereum. The Motley Fool holds posts and endorses Coinbase Global, Inc., Ethereum, and Twitter. The Motley Fool has a disclosure policy.

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