As an investment, XRP (XRP 3.00%) does not really need to compete in every flashy new category within cryptocurrency to pay off for its holders. Rather than spreading thin, its tight focus on providing fast, inexpensive, and legally compliant money transfers for financial institutions means that it can expect to continue growing so long as there are potential users that are still processing their transfers in slower or more expensive ways.
Nonetheless, there's some compelling new data that suggest XRP is exposed to a mighty tailwind that's gaining force. Here's what's happening and why it makes the coin worth buying.
CRYPTO: XRP
Key Data Points
Pay attention to these findings
In January, Coinbase Global conducted a survey of 352 institutional investors in asset management groups, hedge funds, and private banks, as well as other types of financial business. Those institutional investors tend to control the largest quantities of capital on the market, with all but 14% of the survey respondents reporting assets under management (AUM) of $1 billion or more. The results of that survey have some very interesting findings about a new trend that's particularly relevant for XRP and its future. That trend is called real-world asset tokenization.
In short, if an asset is tokenized, it becomes tradeable on a blockchain. In this context to tokenize something means to impute the ownership data about that thing onto a blockchain such that it can be manipulated and tracked there. Native cryptocurrency assets, like XRP, are tokenized by default, but other assets, like houses and cars, are not; there's no blockchain tracking the fact that a particular person owns a particular vehicle or if ownership of it changes hands, because the overwhelming majority of all vehicles are not tokenized.
Real-world assets (RWAs), are everything from Treasuries to real estate to vehicles, commodities, and most other things that aren't cryptocurrencies. The category also includes financial instruments like bonds and mutual funds, among others.
Tokenized real-world assets are essentially assets that have their claims to ownership tracked on a blockchain. Now, let's get back to the Coinbase survey.
Of the investors surveyed, 57% said that their businesses were "very interested" in investing in tokenized real-world assets. Thirty-five percent of those surveyed wanted to learn more about tokenizing assets, and only 8% said they weren't interested at all. These data indicate that it is significantly more likely than not for asset managers to migrate their assets onto blockchains in the coming years.
Reducing fees and transaction costs was a major reason they were interested, as were faster transaction settlement times, and the ability to invest in fractionalized assets. Fractionalization is the process by which an asset, like a house for example, can be broken up into different shares of ownership, just like the ownership of a company is divided across its shares outstanding.
Given those reasons, XRP obviously offers a lot to this crowd. Its transactions are prompt and execute for a cost that's practically free. And fractionalization is readily supported by its real-world asset technology platform. What's more, critical real-world assets that institutional investors use constantly and hold vast quantities of, like U.S. Treasuries, are already on the XRP chain, and tradeable with increasingly deep liquidity. Banks and other financial clients need that liquidity to transact with the sizes they prefer.
Another valuable element XRP offers these potential users is that many traditional financial institutions like banks and currency exchangers are already operating on its network. So if a new user wants to cut fees in transactions with many of the larger players in the international financial industry, they can likely do that by switching to XRP instead of using a legacy transfers technology like SWIFT.
The case for XRP is getting stronger
The institutional investors showing increasing interest in tokenized real-world assets are going to be a driver for higher XRP prices. Between the many other appeals of XRP's ledger, particularly in cost savings and the chain's focus on upgrading its technology to support RWA trading, its target users have a lot to gain by onboarding their assets.
The trend toward asset tokenization is just starting to pick up speed. That means for investors who are willing to buy and hold XRP over the next few years, there could be a lot of growth in store, particularly if the chain is chosen as the winner among the competing options looking to gain dominance in the same segment. Given that it's already far larger than those competitors, XRP's chances are favorable on that front.
And, while it would be ideal if XRP captured all of the growth that's coming to the crypto sector due to RWA tokenization, it's hardly necessary. After all, its transactions will still be dirt cheap and very fast even if the chain is just processing transfers of XRP or stablecoins, which are the main things it's being used for today.
