Source: PaxForex Premium Analytics Portal, Technical Insight
Currently priced at a remarkably low $0.65, the cryptocurrency token XRP may seem significantly undervalued, considering its cross-border payment network, Ripple, and partnerships with major players in the financial services industry. Furthermore, it trades at an 85% discount from its peak of $3.84.
However, a closer look reveals several glaring warning signs for potential investors. Before considering an investment in XRP, it's crucial to be aware of the following key risk factors.
The primary concern revolves around XRP's regulatory troubles, dating back to December 2020 when the SEC filed a lawsuit against Ripple Labs, the entity behind the XRP crypto token. The SEC contends that XRP qualifies as a "security," and it is actively pursuing regulatory measures to enforce this classification.
This regulatory turmoil poses a significant setback for investors, as XRP's fundamental business operations are currently on hold in the United States until the regulatory situation is resolved. Ripple executives anticipate potential legal expenses of $200 million to defend the company, with ongoing fees expected to accumulate for the foreseeable future. This situation serves as a clear and concerning red flag for prospective investors.
So, one might question: Didn't XRP achieve a major legal victory against the SEC last summer? Indeed, that's accurate, but it was, at best, a partial win. According to the court ruling, XRP is not classified as a security when sold to individual investors on a cryptocurrency exchange, yet it is considered a security when offered to large institutional investors.
The lack of 100% clarity suggests that the legal saga surrounding XRP is likely to unfold with more twists and turns in 2024. Expect potential appeals, intricate legal arguments unrelated to cryptocurrencies, and even settlement offers to prevent the case from going to trial.
If one is anticipating that XRP will triumph in its legal battle and resume business as usual after a challenging three-year court ordeal, that might be overly optimistic. Another cause for concern is XRP's continued underperformance compared to the broader market. While XRP experienced an 80% surge in value in 2023, Bitcoin, for instance, saw a more impressive increase of over 150%.
Looking at the current year, Bitcoin is up by 60%, whereas XRP has only risen by 5%. Their trajectories are diverging, and it's uncertain whether XRP can outpace Bitcoin, even if there's a boost from a Bitcoin rally.
Zooming out and taking a broader view of XRP's historical performance reveals a tumultuous trading chart. A flat line until around April 2017, a massive spike in 2018, followed by a sharp decline, another rally in 2021, and another value collapse. Due to ongoing SEC issues, XRP has been trading below $1 for much of the past two years.
Many investors were introduced to XRP during the 2017-2018 rally when it reached an all-time high of $3.84. This historic peak acts as an anchor for some, creating a perception of XRP as a high-potential crypto capable of significant gains in a short time. However, before succumbing to the hype, it's essential to conduct thorough research.
Claims about XRP being a crypto token powering a top-tier payment network might have held true in the past, but newer contenders like Solana outpace it in transaction processing speeds. Ripple can handle 1,500 transactions per second, while Solana theoretically manages 65,000.
What about the speculation regarding XRP getting a spot ETF or Ripple planning an IPO? It's crucial to consider Ripple CEO Brad Garlinghouse's perspective, emphasizing the SEC's hostility toward Ripple and XRP. This suggests that anything requiring SEC approval, such as a new spot ETF launch, is highly unlikely in the near future.
For these reasons, XRP cannot be recommended as a long-term investment, even at its current low price of around $0.65. Despite the temptation and buzz around XRP potentially surging in value, a preference is given to investing in Bitcoin. In this view, Bitcoin offers superior long-term potential with considerably more upside.
As long as the price is above 0.5000 follow the recommendations below:
- Time frame: D1
- Recommendation: long position
- Entry point: 0.6210
- Take Profit 1: 0.7000
- Take Profit 2: 0.7500
Alternative scenario:
If the level of 0.5000 is broken-down, follow the recommendations below:
- Time frame: D1
- Recommendation: short position
- Entry point: 0.5000
- Take profit 1: 0.4600
- Take profit 2: 0.4150
