Saving and investing are keys to building wealth over the long term. And if you have $1,000 that you don't need for expenses, consider putting it to work in the financial markets. The results can be impressive.
For example, if you bought $1,000 worth of the digital coin XRP (XRP -0.46%) five years ago, you would have a return of more than 1,000% today.
XRP is now a $180 billion behemoth. And with such a large market cap, investors shouldn't expect a repeat of the bull run it experienced when it was much smaller and more volatile.
But XRP still looks capable of outperforming the broader market during the long term. Let's discuss some reasons it's still an excellent buy.
For a cryptocurrency, trust is everything
Although it is tempting to analyze cryptocurrencies like stocks or other traditional financial instruments, they are totally different. Unlike a public company, XRP doesn't have any revenue or earnings to give its shares intrinsic value. Each unit is only worth what other people are willing to pay for it, which arguably makes age, trust, and brand recognition the most crucial factors in the cryptocurrency's long-term success.
Brand recognition is one of XRP's key advantages. Since its founding in 2012 (just three years after Bitcoin), it has managed to set itself apart through its focus on potential real-world utility in the payments industry.
Fast transaction speeds and low fees (0.00001 XRP per transaction, a fraction of a cent) make it an ideal bridge currency for moving money between countries. And although newer digital assets offer faster speed and even lower transaction fees, XRP's early-mover advantage and brand recognition have allowed it to maintain its dominant spot as the third-largest cryptocurrency in the market.
An active development team
XRP's next biggest advantage is its development team at Ripple Labs. Unlike many other cryptocurrency projects, which have shadowy and unknown developers, Ripple's leaders are public figures and operate out in the open -- improving the network and expanding into new opportunities. This strategy boosts trust and transparency, which can make XRP more attractive for both real-world users and institutional investors
In August, the Securities and Exchange Commission (SEC) ended its lawsuit against Ripple Labs over alleged violations of securities law related to its sale of XRP tokens in 2020. While the settlement involves a reduced fine of $50 million (because of sales deemed improper to institutional investors), the resolution of this case eases the regulatory uncertainty surrounding XRP, opening the door to new financial products like exchange-traded funds (ETFs), which can make the asset more liquid and easier to trade.
Image source: Getty Images.
Ripple Labs has also been working on other cryptocurrency products, such as RippleUSD, a dollar-pegged stablecoin. The growth and adoption of RippleUSD can benefit XRP because both assets share the same blockchain ledger infrastructure, and transaction fees are paid in XRP.
In July, Ripple Labs took things a step further by applying for a U.S. bank charter, which would allow the XRP developer to settle payments faster and bypass traditional payment processors. This move could dramatically boost the viability of RippleUSD by letting it hold assets directly with the Federal Reserve, and, more importantly, increase the legitimacy and trust of XRP and all of Ripple's other cryptocurrency projects. This move follows the Senate's passage of the Genius Act, designed to clarify U.S. crypto regulations.
What should investors expect from XRP?
XRP can be described as a blue chip cryptocurrency because of its age and size. While investors shouldn't expect the explosive returns of a meme coin, XRP can deliver slower but steadier growth over the long term as it becomes more integrated into mainstream financial infrastructure.
