Ripple: Buy The SEC Uncertainty, Sell The Settlement News - June Update

Summary XRP's recent price upswing and market capitalization increase may signal investor confidence in an upcoming resolution to the SEC lawsuit. Ripple's On-Demand Liquidity (ODL) product adoption remains uncertain, with questions surrounding XRP sales and the company's business model. Predictions for the SEC lawsuit resolution range from as early as July to no later than September, with potential for XRP price to double or triple if the outcome is positive. Despite claims about Ripple's (XRP-USD) use as the one bridge currency for transactions across all financial networks, my first article demonstrates there's not enough documented real-world adoption to justify a long-term position in the coin. But there is an interesting opportunity to buy during the market headwinds from the SEC lawsuit and sell on news of a settlement or outright legal victory. In this update, we'll look at recent price action, industry adoption, ODL progress, Ripple XRP sales, and when the SEC lawsuit could end. Market update and price action XRP has finally enjoyed a recent upswing in price, lifting the coin above the $.50 mark. In the week before this article was written, $2.6 billion has flowed into the XRP market, signaling a strong vote of confidence from the investment community. The market capitalization has risen to $27.19 billion, representing a notable 10% increase compared to the $24.56 billion recorded on May 27. CoinGecko But this is not an independent breakout. As charted below, the price is now simply tracking with Bitcoin ( BTC-USD ) as most alt coins do by default. This is much different than the beginning of the year when XRP was mired in a trading range due to overhang from the ongoing SEC lawsuit. BTC and most other coins made substantial gains during that period. What is different now? Why did XRP escape the sideways grind and become free to move with the market again? My opinion is that a significant amount of investors now believe that the lawsuit will end soon. More on that later. CoinGecko Industry adoption The Ripple 2023 New Value Report stated for a time that the Palau stablecoin project (I wrote about here ) was live after a successful pilot with over 200 citizens. This was later edited by Ripple to say, "Ripple is working with the Republic of Palau on a pilot of a stablecoin— pegged to the US dollar as that is the currency they use—leveraging blockchain technology." Also removed was the reference to Palau's use of the Ripple's Private Ledger CBDC solution. The net result is that we know nothing new about the status of the project. Bhutan remains the only country publicly committed to the Private Ledger platform. The Central Bank of Montenegro (CBCG) has agreed to collaborate with Ripple to develop a digital currency strategy and pilot. The CBCG Governor Radoje Žugić said that: As a central bank committed to following up-to-date national banking trends, the CBCG is actively ensuring it maintains an efficient financial system. We look forward to collaborating with Ripple on the pilot project for creating CBDC or stablecoin. This is an interesting announcement but it provides no details on whether Ripple will implement their Private Ledger technology or simply act as a consultant. This project is only in the launch phase and has a long way to go. The CBCG must determine the important practical applications, design the system, test with simulations, and conduct a trial in controlled conditions. ODL progress For me, whether to hold XRP long term (beyond the SEC case resolution) hinges upon the documented, real world adoption of Ripple's On-Demand Liquidity product. The Ripple Q1 2023 XRP Markets Report had no additional information on the volume growth of ODL payments but we did learn that Bitso, the leading crypto exchange in Latin America, announced last quarter it surpassed more than $3.3 billion in transactions between the US and Mexico in 2022 through its institutional crypto solutions utilizing Bitso’s strategic partners, such as Ripple and its On-Demand Liquidity (ODL) product. Some media outlets mischaracterized this news by saying XRP usage was entirely responsible for all $3.3B worth of transactions. In my experience this misrepresentation of the facts is common and is the reason every claim about Ripple's progress in the industry must be closely examined. In the case of Bitso, Ripple is a partner but so are Circle and Tribal Credit : In November, Bitso partnered with Circle to launch an international wire transfer product that allows small businesses and freelancers to change their dollars into stablecoins and then convert them to Mexican pesos. One month later, the exchange partnered with Tribal Credit to launch a cross-border B2B payment option enabling the conversion of Mexican pesos to Stellar USDC for transactions between Mexico and the U.S. I suspect the lion's share of transactions between the US and Mexico are through Circle's USDC ( USDC-USD ). As I wrote in my August Update article , stablecoin usage has exploded for international transfers and remittances. According to McKinsey & Co. , USDC and Tether ( USDT-USD ) completed $3 trillion of transactions during the first half of 2021. The adoption of crypto in emerging markets presents a real opportunity for international money transfers through stablecoins settlement to become a common occurrence. Ripple XRP Sales Despite claims that all Ripple XRP sales now are to ODL customers , questions have emerged about this practice. It would be fantastic if Ripple is no longer dumping coins in the open market but rather supplying customer needs because demand is rising. But is this really the case? Forbes writer John Hyatt recently scrutinized Ripple’s business model, alleging that the company stealthily promotes XRP sales in lieu of actual remittances and cross-border payments using ODL (archive here ). The Malaysian payment company Tranglo is one of Ripple’s most prominent clients using ODL for cross-border transactions (Ripple owns 40% of Tranglo). Recent SEC filings indicate ODL usage at Tranglo is lagging. At the same time Ripple’s XRP sales are accelerating. How can that be? In the Forbes article, Martin Walker, director of banking and finance at the Center for Evidence-Based Management, contends that ODL is the new way for Ripple to sell XRP without it appearing as they are dumping XRP in the open market: With ODL Ripple lends XRP to partners like Tranglo, which then sell the cryptocurrency to exchanges and pay back the loans in cash. The terms governing Tranglo and Ripple’s partnership–as described in SEC filings from InFinT Acquisition Corp., a Cayman Islands-based special purpose acquisition vehicle that has agreed to buy Tranglo’s parent company–suggest that there are no limits to how much XRP Ripple can sell through Tranglo’s ODL facility, irrespective of Tranglo’s need for XRP. We know that CEO Brad Garlinghouse has admitted that Ripple would not be profitable without XRP sales . Ripple made $2.7 billion profit from “ODL-related” XRP sales in 2021 and 2022. Is Ripple selling XRP to bankroll the company through this ODL scheme? In response to a summary of the key data points and accompanying questions that Forbes shared, a spokesperson for Ripple said that some of the numbers taken from SEC filings are inaccurate but refused to say which ones, and that Tranglo represents a small portion of Ripple’s business. Price predictions Technical analyst DonAlt has been trading XRP and points toward a large potential upside: I’ve been re-buying my XRP in here [above the $0.475 level], basically on the way up because I think the XRP narrative could come in rolling again. The SEC case is getting closer and closer. I think basically if you have a stop loss on this thing, the upside is like a double to a triple. And the downside is like… 10 – 15%. And the outcome of the case, or even if it’s like just barely positive news right… it doesn’t even have to be the outcome. If there’s just like a frown on the judge’s face while the SEC is talking, basically you’re gonna see quite a massive pump… that risk-to-reward seems decent. He goes on to say that alt coins by nature are risky, which is true. But it's affirming to see a high profile analyst come to the same conclusion about XRP that I reached a year ago. How far away is SEC lawsuit resolution? John Deaton, a lawyer representing XRP token holders in the Ripple Vs SEC lawsuit recently presented a new timeline : I will be shocked if we did not get decision from the Judge by the end of September. I will absolutely be shocked and I don’t see that happening. Not a decision of this magnitude. This was an update from Deaton's former estimate of May 6 as a rough deadline based on how the judge typically delivers judgements. Ripple CEO Brad Garlinghouse also made some interesting statements in an interview with a technology investment firm CEO: In terms of where things stand today – I’ll try to not get too much into the legal weeds – you are right that I feel very confident that we’ll see a decision from the courts this year. In fact, I think I would guess that it will be in weeks, not months. There were some decisions that happened last week that you may have read about. Another big name in crypto, Charles Hoskinson founder of Cardano ( ADA-USD ), also expressed his opinion during an AMA on May 31. Hoskinson responded “I think it’s probably next month [June]" when asked if he believed the Ripple lawsuit would end anytime soon. To bookend the first two predictions, Garlinghouse's optimistic estimate could mean as soon as July, with Deaton's deadline of no later than September. We shall see when Judge Torres makes a decision; the whole crypto industry is now waiting for this case to provide some clarity on whether coins are securities. Conclusion There's no new evidence that XRP has value as a long-term holding. The Tranglo SEC filings show ODL adoption is poor. Any metrics around XRP sales for ODL must be carefully examined. As slow as the court proceedings have been, there's sentiment that the case will end relatively soon. I agree that the XRP price could double or triple with any positive outcome but also that XRP remains a risky investment.