Even after a recent pullback, XRP (XRP -0.42%) is up 397% over the last year. Much of that growth is due to the crypto-friendly political climate and the winding down of a lawsuit between the SEC and Ripple, the company that issues XRP.
XRP has been one of many cryptocurrencies to explode in value over the years. Doing that again will be challenging, but there's a path for XRP to deliver tenfold returns.
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Cutting into SWIFT's market could unlock substantial growth for XRP
Ripple provides payment solutions for financial companies. In particular, it focuses on cross-border payments. Ripple's blockchain-based network moves money instantly while reducing fees.
It also offers an on-demand liquidity (ODL) feature, which is where XRP comes into play. Instead of needing pre-funded accounts with foreign currencies, banks can instantly send payments abroad using XRP as a bridge currency.
SWIFT is the current default option for international money transfers, but it's not fast or cheap. Transfers can take several days to arrive to the recipient and cost as much as $50.
Ripple CEO Brad Garlinghouse believes XRP could capture 14% of SWIFT's global payments volume (about $150 trillion) within five years. That would be $21 trillion per year. If Ripple can establish itself as a major payments platform, it will likely lead to much more usage of XRP from financial institutions in need of instant liquidity in foreign currencies.
10x returns are challenging, but not impossible
XRP's market cap is currently about $170 billion. If it increases tenfold, it would be worth $1.7 trillion. Bitcoin is the only cryptocurrency that has reached that value, so it's no small feat.
Because of its role in cross-border payments, XRP is a compelling cryptocurrency investment. While I'm doubtful it delivers tenfold returns over the next decade, simply because of how much growth would be required, I still think it's a quality cryptocurrency to have in your portfolio.
