It wasn't long ago when most serious investors considered cryptocurrencies to be speculative toys that were not worth holding for the long term. But while digital assets remain highly volatile, they have also demonstrated an ability to deliver sustainable long-term returns.
Enter XRP (XRP 0.88%). With prices up by over 250% during the past 12 months, this cryptocurrency is soaring as the industry becomes more confident in its regulatory outlook. But is it still capable of setting you up for life? Let's dig deeper to find out.
CRYPTO: XRP
Key Data Points
The quest for real-world utility
Since its inception with the launch of Bitcoin in 2009, the cryptocurrency industry has promised to transform the way people deal with money by replacing centralization and intermediaries. However, while digital assets have succeeded as a store of value (with a total market capitalization of $2.9 trillion), they still play a tiny role in international commerce, representing less than 0.2% of global transactions, according to data from Statista.
XRP could change this by tackling the $2.4 trillion international payments transfers market. It helps individuals and organizations move money quickly and cheaply across borders.
While almost any cryptocurrency can technically fulfill this role, XRP aims to do it better. The platform's developer, Ripple Labs, has created a global network of banks called RippleNet, designed to clear and settle transactions similar to the Society for Worldwide Interbank Financial Telecommunication (SWIFT). It allows organizations to use its native token, XRP, as a bridge currency or source of liquidity.
Its competitive advantage comes from its low transaction fees of about 0.0001 XRP (which is a fraction of a cent) and speed of 3 to 5 seconds.
Growing institutional acceptance
The most significant long-term tailwind for cryptocurrencies may be institutional acceptance. If mutual funds, pension funds, and even insurance companies become more comfortable holding digital assets, this will boost demand and increase price stability. Unlike retail investors, institutions tend to be more diversified and liquid, which makes them less likely to panic-sell and cause boom-and-bust price movements.
Legal uncertainty might be the most significant barrier to XRP's institutional acceptance (and real-world partnerships). For example, the money-transfer company MoneyGram paused its partnership with Ripple Labs after the developer was sued by the Securities and Exchange Commission (SEC) for alleged legal violations related to the sale of XRP tokens as possible unregistered securities.
Image source: Getty Images.
Ripple won a partial victory in that case after a federal district court judge ruled that XRP sales to retail investors were not securities sales (although sales to institutions still were). The SEC has appealed this decision, but many industry observers are optimistic.
Under the leadership of Mark Uyeda, the interim chairman, the SEC has taken a softer stance toward the crypto industry, aiming to prioritize regulatory clarity over enforcement.
When the rules are established, institutions will be more likely to bet on XRP. And a clearer regulatory framework could also lead to XRP-based financial products like exchange-traded funds (ETFs), which would make the asset more accessible.
Can buying XRP set you up for life?
With a strong case for real-world utility and growing institutional acceptance, XRP looks poised to maintain its position near the top of the cryptocurrency food chain and generate substantial long-term gains. That said, the asset already has a market cap of $130 billion, and the larger something is, the more force is needed to move it. Future returns probably won't be as explosively life-changing as in the past.
