Ripple is the technology company that developed XRP (CRYPTO: XRP), the digital currency native to the XRP Ledger. Ripple uses that blockchain platform to offer cross-border payment solutions to banks and other financial institutions like merchant services providers.
Ripple CEO Brad Garlinghouse recently gave XRP holders some long-awaited good news: The Securities and Exchange Commission (SEC) has dropped its lawsuit against the company. XRP has advanced more than 10% since the announcement, but some investors think the next stop is $5. That implies more than 100% upside from its current price of $2.45.
Is that realistic?
In 2020, the Securities and Exchange Commission sued Ripple for allegedly selling XRP tokens as unregistered securities directly to institutional investors and indirectly to retail investors. In 2023, a U.S. district court issued a split decision. The judge said the direct sales to institutional investors violated securities law, but the indirect sales to retail investors did not.
Ripple was ordered to pay a $125 million fine, far less than the $2 billion penalty proposed by the SEC. Last year, the SEC appealed the decision, reasserting its belief that XRP sold to retail investors was a violation of securities law. But Ripple CEO Brad Garlinghouse told Bloomberg on March 19 the SEC has dropped its appeal, meaning the company is no longer tied up in a legal battle with the regulator.
XRP makes cross-border payments faster and cheaper. It is an alternative to SWIFT (Society for Worldwide Interbank Financial Telecommunications), the system most banks use to facilitate international money transfers. SWIFT payments often incur high fees due to the involvement of intermediaries and may take days to settle. But XRP payments settle in seconds and cost a fraction of a cent.
Importantly, XRP supply is limited to 100 billion tokens, but that figure actually declines over time because a small amount of the currency is destroyed with each transaction. So, the future price of XRP is entirely dependent on demand. And there are a few reasons to think demand will increase. First, the SEC dropping its appeal could make Ripple’s payments solutions more attractive to financial institutions.
Second, Ripple recently introduced a stablecoin called Ripple USD (RLUSD), which serves as a less volatile bridge currency for international money transfers. That could create XRP demand directly and indirectly. RLUSD payments on the XRP Ledger still incur transaction fees that must be paid in XRP, which directly adds to demand. Likewise, RLUSD may lead to more decentralized applications on the blockchain, which would indirectly add to demand.
