Is XRP (Ripple) a Good Buy for Less Than $3?

Investing in cryptocurrency is not for the faint of heart. Although it is possible to make money in cryptocurrency, analyzing this industry requires much more due diligence and risk tolerance compared to picking stocks.

Unlike corporations, there aren't quarterly earnings calls for cryptocurrencies such as Bitcoin or Ethereum. For this reason, the prices of these assets generally move based on narratives as opposed to tangible details and business updates. This can make it challenging to discern which tokens are more worthwhile than others because the cryptocurrency landscape is packed with scammers, meme traders, and hypesters.

Where to invest $1,000 right now? Our analyst team just revealed what they believe are the 10 best stocks to buy right now. Learn More »

However, one crypto that could be in a position to rise significantly from current levels is XRP (CRYPTO: XRP).

Let's dig into why XRP could carry some enticing upside and assess if this cryptocurrency is a worthy investment as it trades for just $2.40.

The Securities and Exchange Commission

The biggest tailwind I see for XRP (Ripple) right now lies in the Securities and Exchange Commission (SEC).

XRP is a cryptocurrency that was created and still overseen by a company called Ripple Labs. Ripple developed a new form of payments processing, letting banks and companies wire money at faster speeds than legacy solutions, all while removing intermediaries that often charge a fee.

While this technology could be seen as a major disruptor, Ripple's momentum hit a snag a few years ago. Namely, the SEC alleged that XRP was an unregistered security and Ripple violated the law when it sold the coin to the public. Ripple's argument is that XRP is a commodity and, therefore, immune to typical regulations surrounding securities such as stocks or bonds.

At a higher level, this very dynamic has been at the center of the cryptocurrency argument for some time now, as lawmakers argue over what crypto tokens really are and how to regulate them. In a way, Ripple's situation isn't really anything new; it's simply an unfortunate circumstance that has derailed the company's trajectory for years now.

Nevertheless, better days could be ahead for Ripple. The Trump Administration has been vocally supportive of the cryptocurrency landscape, and new leadership at the SEC could work in Ripple's favor. Should the protracted dispute between the SEC and Ripple finally come to an end, XRP's price could witness some new life.

There's an important nuance to consider

On the surface, it's easy to buy into the idea that a more accommodating SEC would lead to an improved picture at Ripple. Although this could wind up being the case, does that necessarily mean better days are ahead for XRP?

In my eyes, the answer to that question is a firm "maybe."

Even if Ripple's legal dispute with the SEC goes away, the company still has a lot of work cut out in order to penetrate existing financial infrastructures, which probably won't just had things over to an interloper. In other words, XRP's adoption rate is unlikely to skyrocket overnight. For this reason, I wouldn't be surprised to see a fleeting jolt in XRP's price if the SEC backs off, only to see the price fall once investors realize the long-term narrative surrounding the cryptocurrency's potential remains murky.

Should you buy XRP (Ripple) right now?

As of this writing (Feb. 6), XRP has a market capitalization of $135 billion. So, even though the cryptocurrency's price is well below $3, you're really investing in the asset at a valuation north of $100 billion. In my eyes, that's a high price tag for a technology that is still scaling and proving itself.

To me, a position in XRP should be for investors who can tolerate higher-than-usual risk and volatility, and are OK with the very speculative idea that Ripple's technology will one day be widely adopted by financial institutions.

If these criteria don't fit your investment rubric, then I'd pass on XRP.

Adam Spatacco has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Bitcoin, Ethereum, and XRP. The Motley Fool has a disclosure policy.