Last year was big for cryptocurrencies, beginning with the Securities and Exchange Commission's (SEC) approval of spot Bitcoin ETFs and ending with the price of Bitcoin surpassing $100,000 for the first time ever.
As impressive as the original crypto rise was, XRP (XRP 1.92%) saw its value rocket up more than 400% since last February, peaking at about $3.30 before falling back to its current level of $2.40. The crypto token now has a market capitalization of about $140 billion, the fourth largest in the crypto market.
So, what does 2025 hold for XRP? Can it regain momentum and reach even higher, passing $4?
XRP basics
XRP is a crypto token issued by the company Ripple. It is intended to help facilitate monetary transfers between banks and other financial institutions, especially those that happen across borders. XRP is designed to be fast, secure, and cheap -- very cheap.
Legacy systems used the world over are relatively slow and expensive. Transactions can take days, even weeks, to settle, and navigating currency exchange can be costly as third parties take their cut. Ripple standardizes all of this for a fraction of the price and in a fraction of the time.
For example, if an American bank wants to send money to a French bank, the current system requires third-party banks, clearinghouses, and other intermediaries. It is an exceptionally complex process and is relatively slow. In contrast, XRP can be sent directly between banks, settled almost instantly, and converted into the currency of their choice.
In a world of useless meme coins, XRP stands apart with its real, tangible use case.
Litigation woes
In 2020, the SEC sued Ripple, alleging that it had violated securities laws when it issued XRP. The unresolved suit depressed XRP's price as investors waited to see how the litigation would progress. Last year, a judge ruled mostly in XRP's favor and fined Ripple $125 million, a relatively small punishment.
The SEC began pursuing an appeal of the decision under the direction of then-Chairman Gary Gensler.
The Trump effect
XRP's big breakout came after the presidential election victory of Donald Trump. On the campaign trail, Trump promised his administration would be decidedly pro-crypto and intended to make America the "crypto capital of the planet."
Trump also made clear he didn't want Gensler in charge and that he intended for the crypto-friendly Paul Atkins to take the reins. Upon Trump's election, investors believed this could mean the end of the SEC's appeal and a more friendly crypto regulatory environment more generally.
While Atkins has yet to be confirmed, and the SEC is still technically pursuing an appeal, it seems likely that the suit will be resolved within the year.
There are reasons to be cautious
Although XRP may soon notch another legal win, it's important to take a step back and assess whether it is a good investment. XRP's main value proposition is clear, and it is already being used by financial institutions in the real world. That said, I doubt that it can justify its current valuation. Remember, XRP currently has a market cap of about $140 billion dollars, which is in the same ballpark as Citigroup.
XRP bulls point to the fact that the banking industry spends hundreds of billions a year in transaction fees. If XRP were to capture a significant portion of the market, it would capture this value, right? What's missing here is that perhaps the essential reason banks would consider using XRP in the first place is that transactions are orders of magnitude cheaper than traditional methods; even if XRP facilitated every transaction in the banking industry, the total cost of those transactions probably would be measured in millions of dollars, not billions of dollars.
There are many reasons banks choose one system over another, and while cost is among them, reliability and security are likely even more important. Current systems in use have decades of proven reliability and battle-tested security, and XRP faces a large uphill battle in convincing the conservative banking industry to adopt a new and relatively untested system.
I have serious doubts about XRP as an investment, given its current valuation. It seems to me that there is an exceptional amount of hype surrounding the token and what the current administration could mean for its regulation. While I think the resolution of XRP's suit, if it does indeed happen, will send XRP higher in the short term, I think it will eventually come back to earth as the hype fades.
So, will XRP reach $4 in 2025? It's entirely possible. Still, I wouldn't recommend investing in it.
