Ripple: Its Function and Clarification
Ripple Corporation, renowned for its digital currency XRP (XRP 0.08%), which some refer to as Ripple, is the brainchild of financial technology company Ripple Labs. The company utilizes XRP as a mediating currency to facilitate international transactions and currency exchanges.
Ripple encountered legal disputes with the Securities and Exchange Commission (SEC) back in the past, as the SEC accused the company of offering XRP as an unregistered security to investors. Ripple defends its stance, asserting that XRP is a commodity rather than a security.
This ongoing lawsuit has led to Ripple Labs delaying its Initial Public Offering (IPO). The company has expressed its intention to proceed with the IPO once it manages to clear its legal hurdles.
IPO
IPO refers to the first sale of a private company's stock to the public, thereby qualifying it as a publicly traded entity. Ripple's goal to utilize cryptocurrency for optimizing cross-border payment transactions has excited investors, waiting to participate in its IPO. To acquaint yourself with the company prior to the eventual IPO, here's a primer:
Publicly traded?
Is Ripple publicly traded?
As of now, Ripple Labs, the organization behind Ripple's payment protocol, remains a private entity. Nonetheless, its digital currency, XRP, is freely traded in cryptocurrency exchanges.
When will it IPO?
When will Ripple IPO?
Up until late 2024, there was no scheduled IPO for Ripple. Various factors, including a lawsuit initiated by the SEC alleging unregistered security sales of XRP for $1.3 billion, have delayed its IPO. The lawsuit, instigated in 2020, was still ongoing in late 2024.
In response, the company has considered going public abroad. However, these plans have been temporarily postponed. The company's CEO, Brad Garlinghouse, announced in late 2024 that an IPO was not a top priority due to the company's strong financial position.
How to buy
How to buy Ripple stock
At present, you cannot purchase shares of Ripple Labs through a brokerage account, as it is yet to go public. However, interested investors may explore alternative options while awaiting its IPO. Below are three Ripple investment alternatives.
Fintech
Fintech encompasses a wide variety of software platforms, applications, and hardware solutions that leverage technology to simplify, streamline, and boost the profitability of financial processes.
1. Coinbase
Coinbase, a prominent cryptocurrency exchange, facilitates the easy and secure transmission of Bitcoin (BTC -0.08%). Beyond Bitcoin, the platform has expanded its offerings to include other cryptocurrencies, such as Ripple's XRP.
2. Block
Block, a fintech company, offers various financial tools to businesses. The company introduced Bitcoin trading on its Cash App in 2017 and subsequently formed Square Crypto, now known as Spiral, to boost Bitcoin's usage. The company also developed a Bitcoin hardware digital wallet called BitKey.
3. PayPal
PayPal, a leading digital payments platform, features the Venmo peer-to-peer payments app, enabling users to trade popular cryptocurrencies like Bitcoin and Ethereum (ETH -0.1%). PayPal has also created a stablecoin, PayPal USD, for users to purchase, sell, keep, and transfer cryptocurrency on its site.
Interested investors can purchase shares in any of these Ripple alternatives through a brokerage account. For guidance on investing in these fintech companies, follow this step-by-step procedure:
Step 1: Open a brokerage account
Before initiating your first trade, you'll need to establish and fund a brokerage account. If you haven't done so yet, here are some highly-rated brokers and trading platforms. Take your time to evaluate them to find the perfect fit for you.
Step 2: Determine your budget
Preceding your first trade, figure out how much money you're willing to invest. This money should not be necessary for immediate requirements, such as your emergency fund or home-buying savings. Subsequently, decide on the allocation of your funds.
The Our Website's investing philosophy advises establishing a diverse portfolio of at least 25 stocks, which you should hold for at least five years. You don't need to achieve this level of diversification from the beginning. For instance, if you have $1,000 available to invest, you might want to begin by distributing your funds among at least 10 stocks and then expand from there.
Step 3: Conduct thorough research
It is essential to meticulously research a company before purchasing its shares. Gain a thorough understanding of its revenue sources, competitors, balance sheet, and other pertinent factors to ensure you possess a well-rounded comprehension of the company's potential to create long-term shareholder value.
Shareholder
An individual or entity owning a portion of a company's stock, entitling them to a share of its earnings and assets.
After setting up and funding your brokerage account, determining your investment budget, and investigating the stock, it's time to acquire shares. The process is generally simple. Navigate to your brokerage account's order page and input the necessary details, such as:
- The quantity of shares you wish to purchase or the investment amount for fractional shares.
- The stock ticker (e.g., COIN for Coinbase, PYPL for PayPal, or SQ for Block).
- Whether you prefer a limit order or a market order. Since market orders guarantee you get shares at the current market price, this type is often recommended.
Once you finish filling out the order page, submit your trade and become a shareholder of one of these Ripple alternatives' rivals. This process is similar for buying IPO stocks like Ripple when it eventually goes public. Simply select Ripple's chosen stock ticker to purchase shares through your brokerage account once shares are available.
Profitability
Is Ripple profitable?
As a privately held organization, Ripple doesn't publicly disclose its financial data, meaning there's no publicly accessible information on its revenue or profitability. The company supports its operations primarily through selling XRP cryptocurrency, generating income.
At one point in 2024, the company held over $1 billion in cash and more than $25 billion in crypto, primarily XRP. Some of this cash from XRP sales was used to buy back shares of Ripple Labs from early investors, providing them with liquidity. This strong financial position led CEO Brad Garlinghouse to highlight it as a reason for postponing an initial public offering (IPO).
Ripple also generates income from transaction fees. XRP primarily serves as a bridge currency for facilitating quick foreign exchange transactions.
When Ripple's financial statements become publicly available, potential investors should examine them closely, seeking evidence of rapid revenue growth and future profitability potential.
Should I invest?
Should I invest in Ripple?
Since Ripple Labs isn't publicly traded yet, investors have ample time to research the company and decide whether to purchase shares during the IPO. Here are some factors that might make you consider buying Ripple's IPO shares:
- You currently use or invest in cryptocurrencies and are interested in supporting the company behind this technology.
- You believe XRP will play an essential role in foreign currency transactions in the future.
- You don't think Ripple committed any wrongdoings, but believe the Securities and Exchange Commission (SEC) lawsuit against the company is unjustified.
- You're aware of the risks, as IPO stocks can be volatile, and prices might drop.
- You're optimistic about Ripple's potential for delivering strong revenue and earnings growth in the future.
On the contrary, the following factors could make you hesitant about purchasing Ripple's IPO shares:
- You didn't fully understand what the company does or how it generates revenue.
- You don't own or use cryptocurrencies.
- You're concerned about Ripple's legal battle with the SEC, which could foreshadow future challenges.
- You don't approve of Ripple using XRP sales to fund its operations and generate revenue.
- You're averse to volatile stocks, which will likely characterize Ripple stock when it completes its IPO.
ETF options
ETFs with exposure to Ripple
Since Ripple is still a private corporation, investors can't gain passive exposure to it through an ETF (exchange-traded fund).
Exchange-Traded Fund (ETF)
An ETF allows investors to purchase multiple stocks or bonds at once. However, they can acquire exposure to Ripple's trends through alternate ETFs. One possible alternative is a cryptocurrency ETF.
For example, the Amplify Transformational Data Sharing ETF (BLOK 2.71%) focuses on companies developing and utilizing blockchain technology. As of late 2024, it owned shares of over 50 companies, including PayPal (3.3% of the fund's assets and its ninth-largest holding), Block (3.5% and the seventh-largest), and Coinbase (4.6% and the third-largest holding). It carried a relatively high ETF expense ratio of 0.76%.
Another alternative to consider is an ETF focused on fintech stocks. For example, the Ark Fintech Innovation ETF (ARKF 1.08%) focuses on companies involved in the fintech theme.
Well-known investor Cathie Wood manages the fund, which typically holds between 35 and 55 stocks. Coinbase (10.8% of the fund's assets) and Block (6.4%) were the fund's largest and third-largest holdings as of late 2024. The ETF also has a rather high expense ratio of 0.75%.
Ripple is venturing into new paths through its XRP digital currency, aiming to streamline cross-border and foreign exchange transactions, potentially earning significiant fees in the coming days. However, the ongoing legal dispute with the SEC over XRP sales is hindering its Initial Public Offering (IPO), creating a delay.
Once this legal obstacle is resolved, the company could pursue its IPO. This action would probably boost XRP's popularity and increase the value of Ripple and its digital currency.
FAQ
Buying Ripple FAQ
How can I acquire Ripple's shares?
Ripple Labs, the creators of the XRP digital currency, are not publicly traded. Therefore, buying shares through your brokerage account in the U.S. is not an option. However, you can purchase Ripple's XRP digital currency on U.S.-based exchanges such as Coinbase and Robinhood (NASDAQ: HOOD).
Is Ripple a suitable investment?
It remains uncertain whether Ripple Labs, the company behind XRP, will be a profitable investment following its IPO. As of now, the company has not released any public financial data. Furthermore, they are engaged in a lengthy legal battle with the SEC regarding XRP sales.
To be considered a good investment, the company must show swift revenue growth and a clear path to future profitability. Additionally, it should trade at a reasonable valuation post-IPO. Lastly, the SEC should clear it of any wrongdoing related to XRP sales.
How do beginners purchase Ripple?
Ripple Labs, the company behind the XRP digital currency, is a private entity, meaning you cannot buy its shares via your brokerage account. However, you can purchase XRP through popular exchanges and trading platforms, including Coinbase and Robinhood.
Beginners looking to purchase Ripple's XRP digital currency should:
- Create an account and fund it with an exchange that supports XRP.
- Buy the digital currency.
Will Ripple go public?
As of late 2024, Ripple had not made any public announcements about an upcoming IPO. While rumors indicated that an IPO could occur soon, the company had yet to file the necessary paperwork with the SEC. Due to its issues with the SEC, Ripple considered going public abroad but ultimately chose to postpone its IPO.
Matt DiLallo holds positions in Block and PayPal and has the following options: short February 2025 $77.50 calls on PayPal. Our Website has positions in and recommends Bitcoin, Block, Coinbase Global, Ethereum, PayPal, and XRP. Our Website recommends the following options: long January 2027 $42.50 calls on PayPal, and short December 2024 $70 calls on PayPal. Our Website has a disclosure policy.**
- Due to the ongoing legal dispute with the SEC over unregistered security sales of XRP for $1.3 billion, Ripple Labs has postponed its Initial Public Offering (IPO), which was originally scheduled at some point in late 2024.
- In response to the delay in its IPO, Ripple Labs has considered going public abroad, but these plans have been temporarily postponed. The company's CEO, Brad Garlinghouse, announced in late 2024 that an IPO is not a top priority due to the company's strong financial position.
