Cryptocurrencies are some of the most volatile assets you could invest in. But those willing to hang on for the ride can experience some staggering returns. For example, Bitcoin (BTC 0.71%) is up 2,370% since the start of 2019 as of this writing on February 14. Ether (ETH 0.75%), the native token for the Ethereum blockchain, is up by 1,650%.
But not every token is a winner in the world of crypto. XRP (XRP 0.26%), the cryptocurrency used by the XRP ledger and RippleNet, increased just 34% between 2019 and November of last year. It was mired by an SEC lawsuit alleging that the token was a security and by other setbacks preventing widespread adoption. However, with a new administration in the White House, investors have piled into the coin. And the run might not be over yet.
Even after a stellar run in the last three months, XRP could outperform both Bitcoin and Ethereum over the next year. Here's why.
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Increasing utility and trust with a new stablecoin
Ripple launched a new stablecoin in December called Ripple USD (RLUSD 0.04%). RLUSD is fully backed by reserves in U.S. dollars and government bonds, and it's designed to facilitate faster payments with a stable currency instead of using XRP on XRP ledger.
The introduction of a stablecoin could increase adoption among large financial institutions for RippleNet, which uses XRP to process transactions as well as a bridge currency for conversion. Ripple sees the potential to use the stablecoin as a way to collateralize tokenized real-world assets as well, making it easy to send commodities, securities, and Treasuries on the chain.
The RippleNet payment system has seen strong adoption in recent months, but many banks have been hesitant to fully adopt the system due to regulatory concerns and trust issues. The regulatory issues appear to be subsiding as the new administration is now in place, promptly replacing the SEC chairman. The new stablecoin should provide another reason they can adopt the faster and cheaper system as well.
Ripple USD has already seen strong demand. $100 million in assets flowed into the stablecoin within two months of its launch. That said, the vast majority of that is held on the Ethereum network. Nonetheless, the strong adoption is bullish for the XRP token, as it increases the utility of XRP ledger.
CRYPTO: XRP
Key Data Points
Institutional investors could see big shifts in assets
Both Bitcoin and Ethereum have spot ETFs available for anyone who wants to hold the cryptocurrency as an investment. For many institutional investors, they're the only way to invest in crypto, leaving other tokens like XRP on the sidelines.
However, an XRP ETF (or several) could launch in the near future. Several companies have recently filed applications for spot XRP ETFs with the SEC, which could open the door for broad institutional investor adoption of the token. That would provide an influx of demand for the fixed-supply currency, sending the price higher.
That said, institutional investors may be primed to sell off some of their existing crypto investments as the world faces significant economic uncertainty due to the current U.S. administration's trade policies. As such, they may shift from riskier assets like crypto ETFs to lower-risk assets like Treasury bonds, especially considering yields remain relatively high. That shift could weigh more heavily on Bitcoin and Ethereum than it does on other cryptocurrencies that haven't yet received the ETF treatment, including XRP.
In other words, the potential for institutional adoption is all upside for XRP, while Ether and Bitcoin already experienced their ETF introductions and now face potential downsides instead. Combined with the growing utility of the token, bolstered by Ripple USD, this could lead to a broader overall adoption of the XRP ledger and RippleNet supporting the price of XRP.
As it stands, XRP looks poised to outperform both the leading cryptocurrencies over the next year or so. However, that doesn't mean XRP is going to the moon. The entire crypto market is extremely volatile. XRP still faces some significant risks in overcoming regulatory challenges and growing the adoption of RippleNet. But with true utility and a limited supply, it's a token that has a reasonable path to increased value over time.
