On December 22, 2020, the SEC filed an action against Ripple and two executives. The reason being, Ripple conducted a $1.3 billion unregistered securities offering. Basically, they’re claiming Ripple’s cryptocurrency, XRP, is a security. And securities need to register with the SEC. This sent shockwaves through the cryptocurrency sphere and the markets temporarily sold off. Since then, the cryptocurrency market has bounced back and continued to skyrocket. But what does it mean long term?
First off, it means very little for the likes of Bitcoin, Ethereum, and Litecoin since there are no organizations to go after. This is the whole value proposition of Bitcoin. It’s completely decentralized and there is no single point of failure. That’s why the whole concept that governments can stop Bitcoin is a non-issue. Plus, the SEC has already ruled that Bitcoin and Ethereum are not securities.
As for Ripple’s cryptocurrency, XRP, the future is still unclear. The CEO of Ripple thinks the claim is completely unfounded and thinks the SEC action is ridiculous. But he has to say that. On January 4, 2021, it was a reported that a group of investors filed a petition against the SEC to adjust the action against Ripple to say that the XRP that currently exists should not be considered a security. I have no idea how that will get resolved. And then a day later on January 5th, Ripple’s lead Series C investor, Tetragon, has sued Ripple for its money back. This is a big red flag!
The biggest reaction and a risk to XRP is that several large cryptocurrency exchanges, including Coinbase, have said that they will be delisting XRP later in January. This will severely limit the accessibility of XRP to new investors and dramatically reduce the trading volume. It is a real possibility that this destroys XRP. So what do you do?
This is not financial advice, but there are a lot of great investment opportunities other than XRP that don’t have nearly the amount of uncertainty and risk. I honestly have no idea is XRP dies or this is just FUD (fear, uncertainty, and doubt) to scare away the weak hands. But why bother with something like this. The whole premise of crypto and blockchain is to take power out of the hands of intermediaries. Ripple is an intermediary and they have manipulated the price for the last 3 years. They hold an enormous amount of XRP still. They are actively selling which makes it incredibly difficult for the price to increase significantly. Instead, look at Bitcoin, where companies and funds are pouring billions of dollars with no plans to sell.
Another reaction to the SEC action against Ripple, is exchanges have recently announced the delisting of privacy coins like ZCash, Monero, and Dash. These privacy coins have a feature where you can’t trace the transactions, making the transactions private. My guess is exchanges want to do everything they can to eliminate any chance of the SEC or other government entities to come after them.
All of these actions can be scary, but this is good. This is just helping clean up the space, making it safer for everyone, and further legitimizing the space. It’s also a good example as to why alt coins should be avoided and it’s typically smart just to buy Bitcoin and maybe Ethereum.
As for some good regulatory news, on January 4th, a federal banking regulator said in a letter from the U.S. Treasury department that U.S. Financial Institutions are allowed to use stablecoins and can participate as nodes on the blockchain.
This is huge news for stablecoins like USDC, stablecoin released in partnership between Circle and Coinbase. Stablecoins are cryptocurrencies that are pegged primarily to the U.S. Dollar. Examples of stablecoins include Tether, USDC, GUSD, True USD, to name a few. Not all stablecoins are created equally. Tether is the largest and most used, but is not regulated and some fear it could crumble at any time. USDC is the second largest stablecoin and is regulated. For every USDC coin, there is a real U.S. Dollar backing it.
I think the future of finance and world commerce is with stablecoins. Stablecoins provide all the benefits of using cryptocurrencies without the volatility. These are the cryptocurrencies we will use on daily basis to pay for things like a cup or coffee. Not Bitcoin.
I talk a lot more about stablecoins in my course. I cover how stablecoins and Bitcoin will coexist and explain the difference between stablecoins and Central Bank Digital Currencies (CBDCs).
Weekly Price Analysis
With Bitcoin & Ethereum topping $34,000 and $1,000 respectively it creates quite the conundrum. If you’re in already, do you sell and take profits? They always say, it’s never a bad idea to take profits.
What about for those on the sideline waiting to get in? It feels like as soon as you buy, the market will fall, and if you don’t buy it will keep going up. It’s feels like a lose / lose situation and you feel stuck.
I’m writing this for me as much as for anyone else. If you’re in, just stay in and forget about it for the next 9 months. If you can stand it, forget about it for the next 10 years. Yes, it’s going to be volatile, but you’re better off just riding it for the long term. This is like owning a digital version of prime Manhattan real estate. You don’t sell it, ever!
And if you’re on the sideline, the best thing to do is to dollar cost average in. Buy a little every week no matter what. And if the price dumps, then there’s an opportunity to buy. It’s impossible to say what the price will do short term. But in the long term, it’s going up.
Please shoot me a message if you found this useful! Happy New Year and best of luck on your New Year’s Resolutions.