Although Bitcoin prices cooled off somewhat after hitting the $60,000 mark for the third time in the past month, other cryptocurrencies have been blasting off lately.
Some of that news has centered on Ethereum, the second-largest coin by market cap, which has quadrupled since December.
But Ripple (XRP) — dogged since December, when the SEC went after its top executives — has nearly doubled over the past two sessions.
In the process, that “Ripple Effect” has pushed the total cryptocurrency market cap over $2 trillion – more than double its value at the beginning of the year.
Ripple’s rocket ride appears to have begun with the announcement that XRP holders’ motion to intervene in the SEC’s lawsuit was granted. In principle, that should force regulators to clarify whether they merely consider Ripple Labs’ sales of XRP to be unregistered securities transactions, or whether they actually believe XRP itself to inherently be a security.
Although that difference may sound subtle, the implications are enormous.
On the one hand, if executive sales are the target, that is a relatively narrow outcome – the executives simply register with the SEC and disclose their transactions like any other insider.
But since XRP is already delisted on several platforms, the other outcome — that the SEC considers XRP a security — would likely sound its death knell.
According to digital currency attorney Stephen Palley, “for XRP to survive, Ripple needs to cut a deal w/ SEC & not persist in the risible delusion of ultimate success in the U.S. Supreme Court & substitute the Ripple Test for the Howey Test.”
The Howey Test is the Supreme Court case for determining whether a transaction qualifies as an “investment contract,” which would qualify it as a security.
The case states that such a contract exists if there is “investment of money in a common enterprise with a reasonable expectation of profits to be derived from the efforts of others.”
Now, I am neither an attorney nor a digital currency expert.
But I can read.
And buying crypto sure seems to fit that definition the Howey Test lays out.
Given how conservative the Supreme Court swung during the last administration, I reckon they’d agree.
At any rate, this is not a rally for all you crypto fiends to chase, as XRP volatility is going through the roof and about a 40% near-term downside remains.
Bitcoin may also continue to flag over the near-term. After being big-time negatively correlated to the falling U.S. dollar back in January, it has now developed a positive correlation with the dollar over the past 90 days.
Source: Seawolf Research
That is not a good thing when the U.S. Dollar chart looks like this:
But the remainder of the cryptocurrency market in general doesn’t share that correlation. Its outlook remains solid for the rest of the quarter as inflationary pressures continue to weigh on the U.S. economy.
Mostly, inflation has been expressed through commodities thus far, as per the chart below.
But it’s probably fair to lump cryptocurrencies in with those commodity markets — a controversial comparison to make to Bitcoin “Maxis.”
No matter what anybody in that crowd says, they are definitely not currencies or “stores of value.”
Why, you ask?
Neither of those things double in two days!
So, while I like crypto in general through the middle of the year, I would only buy when they go on sale — usually via capitulation. These markets are volatile enough that sales will happen frequently.
And we will pounce on the next one.
All the best,