This crypto is pumping massively right now, but is it safe to buy?

One of the hottest cryptocurrencies right now is XRP (XRP -9.19%). It’s up more than 30% in the past seven days, and about 50% since mid-June, when it traded for just $0.30. Across social media, the “XRP Army” is mobilizing, with supporters convinced that this former crypto darling is headed for another bull cycle.

So what’s all the fuss about? There is growing speculation that the Securities and Exchange Commission (SEC) will finally settle its long-running case against XRP sometime in mid-November. All signs now suggest that the ruling will be favorable to XRP, which 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 signs apparently pointing to XRP being a crypto. The general consensus now is that if an asset can be shown to be a simple substitute for a traditional fiat currency (eg the dollar), then it is not a security. But if an asset constitutes an “investment contract” where people invest money in a joint venture with the reasonable expectation of making money together, then it is a security. If XRP is deemed to be a security, it will be bad news and XRP may face large fines or penalties. However, if XRP is considered to be a crypto, this could finally clear the way for the future growth of the Ripple payment network.

Image source: Getty Images.

The SEC lawsuit has cast a pall over XRP over the past 24 months, making many hesitant to buy. Some cryptocurrency exchanges, such as Coinbase Global, currently does not offer trading in XRP as they have no desire to get caught up in a legal brouhaha. If you are an XRP investor, the good news is that the regulatory landscape has changed a lot since December 2020. The growing consensus from 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 the stock markets, a “relief rally” usually occurs when expected negative news ends up being positive, or at least not as bad as originally expected. That seems to be the case with XRP, because no one really expected XRP to win its legal battle with the government. But these help meetings rarely last long, and can easily be traced.

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

Another red flag for XRP is that the controversial question “Is this a security or a crypto?” seems to come up continuously these days. Right now, Coinbase is dealing with similar claims that it mistakenly listed “securities” on its platform instead of “cryptos.” Even Ethereum has come under scrutiny recently. As a result of The Merge, which introduced stakes for Ethereum holders, the SEC now says that Ethereum looks and functions much more like a security than a crypto. I don’t agree, but I’m not the one making the decisions in Washington these days.

Is XRP safe to buy?

I’m not so sure everything will go back to normal for XRP and Ripple once the lawsuit is resolved. I love all the energy and passion of the XRP army and I regret selling the last of my XRP back in 2021 out of concern that it would eventually go to zero. However, it appears that a lot still needs to go right for XRP. It worries me when I watch people Twitter says it hopes to pull back on its XRP holdings.

Even the most bullish XRP investors have to acknowledge 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 types of features, including archrival Stellarwhich is up 15% in the last seven days.

So buyer beware: If you’re thinking of getting into XRP now, there’s still a lot of risk involved. I would wait to see if this relief rally has any legs. Crypto investing is risky and volatile enough, and XRP is at the center of one of the most controversial regulatory issues in the crypto world right now. XRP either goes to the moon or it goes to zero. Unfortunately, one of these scenarios is more likely than the other.