After a tumultuous 2022 that preceded a monster bounce-back year in 2023, it looks like cryptocurrencies are back in style among the investment community. The asset class's current market cap of over $1.6 trillion is about double its value at the end of 2022.
While most of the attention goes to Bitcoin, primarily as a result of the recent approval of spot ETF products, there are some lesser-known digital assets performing well lately, too. Ripple (XRP 0.26%) is one of them. The price of its native token skyrocketed 81% last year, even though it remains 82% below its peak.
Better days could be on the horizon. If you're looking to buy and hold Ripple with $10,000, there are two important reasons that work in your favor. But don't ignore one obvious reason to avoid it like the plague.
Real-world use cases
Of the tens of thousands of different cryptocurrencies out there, I suspect that most of them serve no purpose. The dog-inspired tokens, like Dogecoin and Shiba Inu, immediately come to mind.
Here's where Ripple stands out. It was launched in 2012 to provide a better way for financial institutions to complete cross-border transactions. The sender's local currency would be converted to the network's token, XRP, before being sent over the blockchain. Then, it would be converted to the recipient's currency.
Ripple has grown to become a $28 billion cryptocurrency because of the help of some key features. Speed is one of them. Ripple operates at lightning speed, with transactions completing in seconds. The typical transaction is also incredibly cheap, costing fractions of a penny.
This stands out when compared to Bitcoin. The most valuable cryptocurrency can handle just three transactions per second. And the latest data shows that the fee to send a transaction is currently $12.60.
CRYPTO: XRP
Key Data Points
Large addressable market
Cross-border payments is a huge business. This gives Ripple a truly massive addressable market to try to make progress toward.
According to Oliver Wyman, a consulting firm, it is estimated that more than $23 trillion is sent between companies across borders. This is a gargantuan sum, and $120 billion of it is spent just on transaction costs. Ripple can also become a compelling way to send remittances among customers, an essential financial activity that results in hundreds of billions of dollars moving between countries every year.
Here's where Ripple's low-cost and fast solution can be a perfect fix.
Reason to avoid: Extreme uncertainty
Despite some very strong arguments for why Ripple should be in your portfolio, there is just one important risk factor that can't be ignored: Extreme levels of uncertainty. As is the case with every other crypto, no one has any clue what the next five or 10 years will look like, and this introduces meaningful downside to the equation.
To its credit, should Ripple gain greater adoption and see more usage of its network, its price could be up significantly in the future. On the other hand, there could be an even higher probability that things won't play out like this.
Perhaps large financial institutions will avoid relying on a blockchain for cross-border transactions, instead focusing on developing internal technologies and infrastructure. And in Ripple's case, regulatory concerns could remain an issue, particularly as legislators ruled that the institutional sale of XRP tokens was a violation of securities laws.
If you still view the positive traits of this cryptocurrency in a favorable light, especially when considering the high uncertainty, then it makes sense to add a tiny position. For many people, I'm sure that means a far lower investment than $10,000. Nonetheless, everyone's situation is different, so it's best to understand things from your own perspective before making a decision. Just don't forget to understand the risks.
