The cryptocurrency industry is known for its life-changing returns, and XRP (XRP -0.48%) is no exception. If you invested just $5,000 a decade ago, your position would be worth more than $1 million today, compared to the S&P 500's (^GSPC -4.84%) return of just under $13,400. Not too shabby, eh?
Of course, everything would have depended on whether you were able to stomach the cryptocurrency's wild volatility during that time frame. And that's difficult for most people to do. Furthermore, past performance isn't a guarantee of future results.
Let's dig deeper into what the next 10 years could have in store for this exciting digital asset.
CRYPTO: XRP
Key Data Points
XRP is achieving regulatory victories
XRP got a boost from Donald Trump's election victory in November, as many believed his administration would be favorable to crypto. They turned out to be correct. A little more than two months into his term, the new administration has announced the creation of a Bitcoin strategic reserve and established a cryptocurrency task force designed to clarify the regulatory framework for the industry.
Perhaps most importantly, under the leadership of acting chairman Mark Uyeda, the Securities and Exchange Commission (SEC) has begun unwinding some of his predecessor's legal actions. This trend includes the SEC dropping its appeal of a 2023 ruling that the sales of XRP's coins by developer Ripple were not securities on public markets.
While Ripple still faces some legal battles related to fines and its XRP sales to institutional investors, this news could have a dramatic positive impact on the asset's mainstream adoption and growth potential.
Moving into the mainstream
Although many top cryptocurrencies have enjoyed sustained long-term growth, investors should remember this isn't necessarily the case for all digital assets. Countless others fade into irrelevance after the hype dies. The difference may boil down to institutional acceptance.
Institutional investors are large professional money managers like pension funds, university endowments, and insurance companies that allocate vast amounts of capital for their clients. These types of organizations can be very beneficial for a cryptocurrency's success because they give it an air of legitimacy and can reduce volatility. They typically maintain larger positions and are less likely to panic sell than a retail investor.
Image source: Getty Images.
Institutional investors are notoriously risk averse, and the progress toward resolving Ripple's legal challenges will make them more comfortable holding XRP, helping it stay in the ranks of large mainstream cryptocurrencies. The fading legal uncertainty could also pave the way for XRP-based financial products like exchange-traded funds (ETFs).
Several U.S. financial companies have filed applications for an XRP ETF with the SEC. And in February, Brazil became the first country to approve an XRP ETF, allowing investors to get exposure to the asset on the nation's traditional stock exchanges without dealing with crypto-specific complexities like digital addresses and wallets.
What comes next for XRP?
Although XRP is enjoying some exciting fundamental tailwinds, investors shouldn't necessarily expect a repeat of the life-changing returns it enjoyed during the past 10 years. The larger an asset gets, the more buying pressure is needed to move its price upward. And with a market cap of $125 billion, XRP is already enormous.
Furthermore, the cryptocurrency industry is known for excessive volatility. And with the XRP price still near historic highs, investors should also consider macroeconomic factors like a possible recession (Goldman Sachs sees a 35% probability in 2025), which could suck the air out of the crypto industry as it did in previous downturns. That said, XRP looks like a long-term winner for investors who can tolerate the near-term uncertainty.
