Remember the story with the two blindfolded guys standing around an elephant? One has his hand on the elephant's leg and swears it's a tree, but the other has his hand on the elephant's trunk and insists he's got a snake on his hands. They couldn't disagree more.
Now, that's oversimplifying a bit, but that's basically the upshot of the huge controversy swirling around Ripple (XRP) right now - a dispute that's only getting hotter and more urgent now that the holidays are over.
Ripple insists it's a cryptocurrency, but the U.S. Securities and Exchange Commission doesn't see it that way.
Market regulators say Ripple is a security - shares - just like Microsoft Corp. (NASDAQ: MSFT) or Walmart Inc. (NYSE: WMT). The SEC alleges that Ripple is an unregistered security, and that executives have benefitted to the tune of $1.3 billion.
And now Ripple owners, who have filed their own petition in the case, are worried because crypto platforms all over the world, including U.S. heavy-hitters like Coinbase, are suspending or delisting XRP, or have said they intend to delist XRP by the end of the month. That's really bad news if you happen to own Ripple.
I mean, in the markets, what good is something you can't buy or sell?
Ripple had been on a nice run in November and December, but news of the SEC suit and moves to axe it from exchanges sent XRP tumbling 70% or so to the mid $0.20-range.
This is like a he-said, she-said scenario with billions at stake, and it could take years to play out. It'd be pointless to speculate on the outcome.
Speaking of speculating, folks who still have the ability or access to trade Ripple (and a bottomless appetite for risk) helped push it toward $0.25 yesterday, the first trading day of the new year.
To be clear, I really don't expect those Ripple gains to stick. Even if you're speculating, it's an extremely dicey position. In fact, I think Ripple will come under more and more pressure as more and more exchanges pull the ripcord.
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Honestly, I'm surprised it took Ripple this long to hit a wall. The really cool thing about crypto is its total lack of centralization. Ripple never quite fit that bill; it's always been pretty centralized, and something like 100 big banks were using it by 2018. Its blockchain applications - the other really cool thing about crypto - were barely utilized there. I have to say I get where the SEC is coming from in this case.
And that brings us to Bitcoin - the coin I'm expecting to be a huge beneficiary of all this...
The World Is Coming to Bitcoin
To say Bitcoin has been on a tear is really understating it. During its massive and memorable 2017 run, Bitcoin came up more than 1,852% to just shy of $20,000 before crashing and bottoming out in the $3,400 region in February 2019.
2020's Bitcoin surge wasn't as dramatic - "only" 363% or so - but it's been much healthier, much more sustainable; it looks like it has legs. One year ago, one BTC would've bought 7,347 U.S. dollars, and just the other day, it topped $34,450.
In 2017, mania and FOMO - the "fear of missing out" - pushed Bitcoin to those highs. These are the two main ingredients for a bubble.
But this past year, we've seen some of the world's biggest, most important payment platforms, like PayPal Holdings Inc. (NASDAQ: PYPL) and Square Inc. (NYSE: SQ), adopt and offer Bitcoin options to their customers, opening the crypto market to millions more people. Those are fundamental, positive changes, which actually lend real strength and staying power to Bitcoin's position.
Now, it's true, Bitcoin has come really far, really fast. Its steep drop to under $30,000 yesterday underscores that point, and a lot of analysts can't help but say the "granddaddy of crypto" might be a tad overextended.
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But a correction in this case is healthy, and as volatile as cryptos like Bitcoin can be sometimes, the market found the bottom in a matter of hours and rallied to nearly $32,000. If the fall from $34,000 were really a "bursting bubble," BTC would have basically fallen through the floor.
I'm expecting the rally in Bitcoin to stay fairly strong because the fundamentals are fairly strong. I think there's a lot of room to run higher, and not just because more companies will embrace Bitcoin in 2021.
There's fiscal stimulus money hitting accounts, now, and the last time that happened, a lot of it found its way into stocks - and Bitcoin. With the new administration, there's the prospect of more stimulus, too.
We'll see "Ripple money" come into BTC, as well. What isn't tied up in frozen accounts is now just sitting on the sidelines, looking for opportunity. Bitcoin is a smart, smart bet for that, because it'll be seen as a kind of safe harbor. In that way, it's not all that different from gold.
The smart move here: Buy Bitcoin on any dip right now, but be prepared for those dips; Bitcoin is volatile stuff, though over time that's going to smooth out. Hold your nerve.
Another smart move - take a look at my colleague Tom Gentile's crypto and microcurrency trading research. The profit potential of Bitcoin and other crypto in 2021 could quite possibly be extreme, and Tom's research has given his readers the chance to get a crack at some nice profits. Take a look here...