XRP (XRP -6.72%) has been one of the hottest cryptocurrencies during the past year, but in recent months, it has been declining in value. On Monday, it was trading at about $2.26, down more than 33% from its 52-week high of $3.39.
But with a lot of promise surrounding the crypto and its ability to add efficiency and transform global payment networks, could this be an opportune time to start or add to a position in XRP?
Image source: Getty Images.
Could this be the calm before the rally?
During the past three months, there hasn't been much excitement around XRP. The digital currency has declined about 2% in that time (as of June 16), while Bitcoin has risen by almost 30%. But if you zoom out to over a longer time frame, then you can see that it has been the much stronger-performing cryptocurrency during the past 12 months.
XRP vs Bitcoin data by YCharts.
XRP took off last year after Donald Trump's presidential election win and expectations of more relaxed crypto regulation. Lately, however, there hasn't been a whole lot of positive news to give the coin a boost, which may explain the lull; crypto investors may simply be in a holding pattern. But that could soon change.
Why XRP may climb higher
The big event that investors are waiting for now is the approval of a spot price XRP exchange-traded fund (ETF). As one of the most valuable cryptocurrencies by market cap, it may only be a matter of time before XRP gets its own spot ETF, following in the footsteps of both Bitcoin and Ethereum. Analysts believe there is an 85% chance that it will obtain approval this year.
At a market cap of about $132 billion, even though it is one of the top cryptocurrencies in the world, it is far behind Bitcoin, which is worth more than $2.1 trillion. Even Ethereum has more than double XRP's market cap at about $320 billion.
Unlike many other digital currencies, XRP has practical uses, with a big one being its ability to improve cross-border transactions by cutting processing times and reducing costs. Ripple, the business that created it, has partnered with multiple banks, and there is a clear opportunity here for XRP to not necessarily disrupt financial institutions but to work with them.
Approval of a spot ETF could be what's needed to further legitimize XRP in the eyes of investors. By giving them an easy way to invest in the promising digital currency, that could be just what's needed to spark a rally. The big question appears to just be if and when that will happen.
Should you buy XRP right now?
The chances are high that XRP obtains approval for a spot ETF in the near future, but that also might mean that investors have already priced that into the cryptocurrency's valuation. Digital tokens rise on new catalysts and developments, and if expectations are high that approval is forthcoming, XRP may not necessarily surge on the news. Often, it's a case of "buy the rumor, sell the news," and if that's so, XRP's value may even decline on the spot ETF approval.
However, if you're comfortable with the risk in crypto, then this may not be a bad place to make a modest investment. In the long run, regardless of when the spot ETF approval takes place, XRP has a lot of potential, and it has been rising in prominence in the financial world.
But with so many regulatory, economic, and political factors potentially affecting the digital currency's performance, it is not necessarily a sure bet to take off quickly in value, which is why you may need a lot of patience.
