After the 2024 presidential election, XRP (XRP -5.66%) skyrocketed by nearly 600%, hitting a 52-week high of $3.39 in January. Although it has cooled off considerably since then, that brief run was enough to galvanize investors from around the world to find creative new ways to get exposure to XRP.
What's happening now is unprecedented in the history of XRP. Companies in industries not even tangentially related to crypto or blockchain are suddenly deciding to add XRP to their balance sheets.
The new XRP treasury strategy
What do a Chinese transportation solution provider, a London-based renewable energy company, and a Florida-based pharmaceutical company have in common? They're all raising tens of millions of dollars and using that money to buy as much XRP as they can.
Image source: Getty Images.
There are now at least five companies worldwide that have embraced this strategy in just the past 60 days. The formula is very easy to follow: Find deep-pocketed outside investors, promise a high rate of return in exchange for investing in the business, and then start buying XRP.
The Bitcoin playbook
If this strategy sounds familiar, that's because it is. This is a version of the Bitcoin (BTC -2.93%) treasury company model pioneered by MicroStrategy (MSTR -3.05%), which is now doing business as Strategy. During the past five years, Strategy has accumulated 582,000 Bitcoins, worth about $64 billion at today's prices.
Michael Saylor, the founder and executive chairman of Strategy, discovered he could outperform Bitcoin by going all-in on this strategy. During the past five years, Bitcoin is up an impressive 1,000%, but Strategy stock is up a remarkable 3,200%. That's not just better than Bitcoin -- it's also better than any single company in the S&P 500.
Will a strategy created for Bitcoin work for XRP?
It's easy to understand the allure of the Bitcoin treasury company business model. Buying as much Bitcoin as possible leads to turbo-charged returns for investors. As long as the price of Bitcoin goes up, the valuation of any company that embraces this model should also go up. That explains why Strategy copycats are popping up everywhere.
One drawback of the BTC model, though, is that it's prohibitively expensive. To achieve any scale, you need very deep pockets. A single Bitcoin costs more than $100,000, so table stakes for getting started with a BTC business model is already about $500 million.
Compare that to XRP, which trades for about $2.30. The scale could not be more different. That's what makes the size of the recent XRP investment deals so staggering.
For example, VivoPower International (VVPR -3.30%) recently raised more than $100 million from investors to power its XRP strategy. That $100 million will go a long way when you're buying a $2 digital asset and not a $100,000 digital asset.
Buyer beware
This isn't an endorsement to invest in any of these XRP treasury companies. Far from it. After all, they could collapse in value entirely if the price of XRP declines for an extended period.
On top of that, there's the additional risk of investing in, say, a healthcare company or an energy company. These companies might make a windfall profit on their XRP investments but might be hemorrhaging money elsewhere.
For that reason, Strategy has dropped any pretense of being a software company. It now refers to itself as a Bitcoin treasury company and has told investors it wants to be valued solely on the basis of the Bitcoin it owns.
What will be the impact on XRP?
Based on initial estimates, it looks like $500 million has been funneled into this new XRP treasury strategy in just the past two months. Considering that the total market cap of XRP is $134 billion, it's probably still not enough to move the needle.
But here's the thing: There are no spot XRP exchange-traded funds (ETFs) right now. As a result, investors could be hunting for XRP proxy stocks to get their XRP exposure. They might decide that investing in an XRP treasury company is the best way to get that exposure.
The same phenomenon occurred with Bitcoin before the launch of the spot Bitcoin ETFs. Strategy was the Bitcoin proxy stock you had to own, even though it was an enterprise software company.
Don't underestimate the potential for this XRP treasury strategy to really take off. Earlier this year, Wall Street predicted that as much as $8 billion might flow into new spot XRP ETFs, once they're approved. So there might be plenty of additional cash flowing into XRP soon via these XRP treasury companies.
That said, I'm remaining on the sidelines. These XRP treasury companies are far too new and speculative. For exposure to XRP, I still prefer to invest directly. If all goes according to plan, all of this new money pouring into XRP will push its price even higher.
