Valued at more than $2.2 trillion right now, the cryptocurrency market appears to be leaving the so-called crypto winter behind. Thanks to surging optimism, especially for top digital assets like Bitcoin (BTC -2.24%) and Ethereum, the industry is back in investors' good graces.
But not all cryptocurrencies have skyrocketed. XRP (XRP -1.87%), which carries a market cap of $30 billion, is up only 39% in the last 12 months. And the coin, often known by the distinct but related Ripple name, is currently 85% below its peak price.
Some bullish investors might still have high hopes for this beaten-down crypto. Can XRP be a millionaire-maker?
Ripple's promise
XRP, the native cryptocurrency of the RippleNet payment network, is used on its blockchain network to process fast and cheap financial transfers, with a particular focus on trying to disrupt cross-border transactions. The process involves converting a sender's currency into XRP on the sender's end, then converting to the receiver's currency in another country. The use of the RippleNet service and XRP cryptocurrency could be (but isn't always) seamless to both of the endpoint users.
Given that more than $150 trillion of money was moved internationally in 2022, Ripple is aiming to penetrate what is truly a gargantuan market.
The usual process for sending cross-border transactions can be slow and expensive, involving numerous counterparties and intermediaries. So, it makes sense why Ripple's founders want to find a way to fix this imperfect system.
To its credit, Ripple has partnered with many financial institutions to boost adoption. For example, there's a partnership in place with Mastercard to explore a use case for central bank digital currencies on the Ripple network. Even Bank of America has had a positive perspective on what Ripple is trying to do.
The network seems to be active. According to bitinfocharts.com, Ripple handled nearly 700,000 transactions in the last 24 hours.
It's obvious to me that in order for Ripple to make millionaires out of its investors, adoption would need to rise substantially over the long term. As demand increases for the digital coin, its price should as well.
Being cautious
Before rushing to buy Ripple without hesitation, I think investors would be better off if they understood the reasons to be a bit cautious.
Ripple's digital coins were launched in 2012 because the founders saw the limitations of Bitcoin, mainly that the world's most valuable cryptocurrency was slow, expensive, and energy-intensive. But today, Bitcoin is worth more than $1 trillion, about 33 times more than Ripple.
If XRP is really catching on in terms of adoption, and market participants see it being a viable solution to cross-border payments, shouldn't its value be much higher than it is right now? For all of its perceived limitations, Bitcoin sure has amassed a sky-high valuation. Therefore, I think the market is signaling what it believes is the best way to store and move money around, and that's Bitcoin.
Ripple is also dealing with regulatory uncertainties. A judge recently ruled that the sale of XRP coins to institutional investors was a violation of securities laws. And it could be a long road ahead of back-and-forth arguments between Ripple and regulators to straighten things up. Perhaps this is what is preventing much greater adoption, as there's a big question mark surrounding how things will play out.
There are two factors that could limit Ripple's long-term gains. For one, most of Ripple's transactional activity happens outside of the U.S. Missing out on payments in the world's largest economy is a huge blow.
Besides competition from other cryptocurrencies, Ripple must contend with traditional financial businesses. For example, JPMorgan Chase, the largest bank in the U.S. by assets, is working on Onyx, a blockchain-based system of moving value around, powered by an institution that already dominates the industry.
Ripple deserves credit for attempting to build a real-world use case for crypto and blockchain, which is a breath of fresh air compared to all of the useless speculative coins and tokens out there. However, based on the facts, I don't think XRP can be a millionaire-maker. There's simply too much uncertainty.
