The XRP (XRP -2.37%) cryptocurrency, often called Ripple, is sitting out the current crypto rally. Bitcoin (BTC -2.25%) has gained 57% in the last month, as of the evening of Feb. 28, while Ethereum (ETH -0.61%) has risen by 52%. But XRP only posted a 12% price increase over the same period:
As a result, the XRP crypto is changing hands just below $0.60 per digital coin, in line with the average prices of the last six and 12 months.
Should crypto investors consider grabbing a few XRP coins at this modest level, corresponding to a total market cap of approximately $32 billion? Or is the currency poised to stay low for a long time while the likes of Ethereum and Bitcoin prepare for launching to the moon?
How XRP creates value
The XRP cryptocurrency and the RippleNet payment system provide three core functions to the global economy:
- Cross-border payments: The most important value of XRP lies in its ability to facilitate fast, low-cost transactions across international borders. This is in contrast to traditional banking systems like SWIFT, which can be slow and expensive. XRP acts as a bridge currency, allowing financial institutions to quickly convert one currency into another, with the help of banking partners facilitating conversions between XRP and local currencies in dozens of countries.
- Liquidity provider: Ripple's on-demand liquidity solution (ODL) allows financial institutions to bypass traditional, slow methods of sourcing liquidity for cross-border payments. By relying on XRP's inherent value, they can access the necessary funds in crypto form almost instantly and at a low cost, resulting in faster and more efficient transactions.
- Potential store of value: While XRP's primary function is in payments, some investors and speculators view it as a potential store of value, similar to Bitcoin. Others are drawn to the potential for price appreciation in XRP and other cryptocurrencies, betting on quick and massive price increases. However, its price has remained relatively stable in recent years, and its most significant value driver remains the RippleNet network's utility for foreign payments.
The XRP coin should gain value as more people use the payment system and liquidity service. The currency is not directly connected to the spot prices of Bitcoin or Ethereum, running a completely separate blockchain ledger with a unique technical platform called Nominated Proof of Stake. So it's not too surprising to see XRP's price chart zig when the sector leaders are zagging.
How's that value-building plan working out right now?
On that note, XRP recently saw a huge spike in transaction volumes. RippleNet processes about 200,000 payments on an average day, but that metric skyrocketed to more than 5 million daily transactions around the New Year's weekend. The volume has been fading since then but still stands at more than 1 million payments per day.
That volume boost hasn't resulted in soaring XRP prices, and the soaring transaction volume seems to involve a relatively small number of deep-pocketed users moving a lot of money over the RippleNet service. That's not the groundswell of individual users that would indicate a broad market adoption and support further growth as people get used to this quick and low-cost money-transfer solution.
XRP, Ripple, and RippleNet may suddenly turn mainstream and replace old-school SWIFT payments someday. That would be the moment when XRP prices could skyrocket amid soaring usage of RippleNet payments. But that day hasn't come yet, so XRP investors are waiting for a killer app, a marketing breakthrough, or some other growth catalyst.
Meanwhile, the legal battle with the U.S. Securities and Exchange Commission (SEC) continues, with a couple of minor victories for the Ripple team last year -- but perhaps years away from the final gavel. That's another factor weighing on XRP's value and utility. Completing this courtroom drama could do wonders for XRP's coin price -- or kick it to the curb, depending on the legal drama's actual outcome.
XRP is a solid buy, but don't expect immediate results
I can't promise surging XRP prices any time soon, since one or more events with uncertain outcomes and timing need to be resolved first. This isn't the right cryptocurrency for impatient investors, but crypto buyers with endless patience should consider picking up a few XRP coins on the cheap.
I'd hate to be left empty-handed if and when RippleNet gains traction and the seemingly spring-loaded digital coin starts to take off. As always, investing is a marathon and not a sprint, even in the cryptocurrency corner of Wall Street.
