XRP Faces 55% Drop Risk Amid SEC Lawsuit, ETF Hopes

XRP, the cryptocurrency associated with Ripple Labs, has experienced a loss of momentum since late last year, trading within a range of $2 to $3.40. The lack of a well-defined trend and the formation of a head and shoulders chart pattern indicate potential risks for the XRP price. Several key catalysts could significantly impact the XRP price in the near term.

The most significant catalyst is the ongoing legal battle between Ripple Labs and the Securities and Exchange Commission (SEC). The case, which began in 2020, involves allegations of illegal capital raising from investors during Ripple's 2013 token sale. A judge ruled that XRP is not a security but fined the company $250 million for illegal capital raising, a decision that the SEC has appealed. There are indications that the SEC, under the Trump administration, may end the lawsuit, which could positively impact the XRP price by allowing Ripple to engage in deals with financial services companies. However, the prolonged uncertainty surrounding the case could exert negative pressure on the XRP price.

Another key catalyst is Ripple's ambition to become a viable rival to SWIFT, the global banking messaging platform. The end of the SEC lawsuit would facilitate Ripple's goal of creating a faster, cheaper, and more efficient payment system. Ripple's transaction costs are significantly lower than SWIFT's, making it an attractive option for banks. This could drive demand for XRP and boost its price.

The approval of an XRP Exchange-Traded Fund (ETF) is another potential catalyst. The odds of a spot ETF approval by the SEC have increased, with participants estimating an 80% chance of approval for funds by companies like Grayscale, Canary, and wisdomtree. An XRP ETF would attract institutional investors, leading to increased demand and a potential price surge.

Macroeconomic factors, such as a potential recession in the United States, could also impact the XRP price. Historically, recessions have led to interest rate cuts by the Federal Reserve, which has positively affected crypto and stock prices. However, the current economic outlook remains uncertain, and its impact on the XRP price is difficult to predict.

Despite these positive catalysts, there are risks that could lead to a significant drop in the XRP price. The head and shoulders pattern on the daily chart suggests a potential downside move to the psychological point at $1, which is about 55% below the current level. Additionally, there is a risk that all positive catalysts have already been priced in by market participants, limiting further upside potential.

Ask Aime: What factors could influence XRP's price in the near term?