Cryptocurrency was once touted as a potential replacement for traditional money, but none of the coins or tokens on the market today are widely accepted as payment for goods and services -- not even the industry leader, Bitcoin (BTC +2.13%). But some cryptocurrencies were developed for other purposes, including XRP (XRP +1.27%), which is used as a bridge currency in Ripple's global payments network.
XRP is currently the world's fifth-largest cryptocurrency, with a market capitalization of about $150 billion, but it only recently set a seven-year high, and its returns during that time have been lackluster. But one of the token's biggest headwinds is now out of the way, and there are some bullish catalysts on the horizon that could fuel further upside.
However, the journey to higher ground won't be smooth for XRP. Here's how much I think the coin could be worth a decade from now.
Image source: Getty Images.
Ripple is no longer battling the top U.S. regulator
Ripple created the Ripple Payments network to enable banks to transfer money across borders instantly, no matter what existing infrastructure they use. XRP can standardize those transactions; a U.S. bank can send XRP to a Chinese bank instead of sending U.S. dollars, which eliminates expensive foreign exchange fees. The XRP transfer would cost about 0.00001 tokens, or a fraction of one U.S. cent.
XRP has a total supply of 100 billion tokens, with 60 billion in circulation and the other 40 billion held by Ripple, which the company slowly releases to meet demand from institutions. But the U.S. Securities and Exchange Commission (SEC) took issue with this arrangement in 2020, suing Ripple for alleged breaches of financial securities laws. This was the big headwind I referenced earlier.
The SEC argued that XRP should be classified as a financial security, just like stocks and bonds, which are also issued by companies. This would have placed Ripple under a strict regulatory framework and potentially derailed its business model. However, the company received a favorable ruling from a judge in August 2024, and then in August of this year, the SEC agreed to settle the case in line with President Donald Trump's pro-crypto agenda.
The settlement was one of the catalysts that catapulted XRP to $3.65, the highest since 2018. However, investors are also enthusiastic about the potential approval of spot XRP exchange-traded funds (ETFs), which appears likely this year thanks to the SEC's supportive approach to the crypto industry. Spot ETFs would buy XRP tokens directly, which could create a new source of demand from financial advisors and institutional investors.
The ETF hype might be overblown
The SEC was expected to approve the first of the spot XRP ETF applications on Oct. 18, but the U.S. government shutdown caused a delay. In any case, I'm not so sure ETFs will be as bullish for the token as many investors believe.
The SEC approved spot Bitcoin ETFs in January 2024, and these funds now collectively manage about $145 billion in assets. Therefore, they are creating real demand for the cryptocurrency and have unquestionably contributed to its gains during the past couple of years. But many investors already considered Bitcoin to be a legitimate store of value because of its capped supply of 21 million coins and its decentralized structure, which ensures it can't be controlled by any person or company.
In other words, ETFs simply filled a gap in the market by allowing financial advisors and institutional investors to buy Bitcoin in a safe and regulated manner. Previously, they might have shunned the cryptocurrency because holding it in a digital wallet left the door open to hacks and irrecoverable losses.
XRP lacks many of the qualities that make Bitcoin so valuable. It has a much larger supply, and it's a centralized cryptocurrency because it's controlled by Ripple. XRP's lack of upside during the SEC's lawsuit proved the token's performance is very much tied to the fortunes of the company, creating a major risk that simply isn't present with a decentralized cryptocurrency like Bitcoin.
CRYPTO: XRP
Key Data Points
XRP might be trading lower in 10 years
There is another reason XRP ETFs might suffer from a lack of demand. Ripple Payments supports the use of fiat currency, so banks don't actually have to use XRP to benefit from instant cross-border transactions. Therefore, the token's value isn't directly tied to the success of the network. That means speculative investors might be its main source of demand, and I don't see why conservative long-term investors would buy ETFs for such an asset.
Plus, Ripple launched its own stablecoin last year called Ripple USD (RLUSD 0.03%), which might be better suited to its payments network because it avoids volatility. XRP's value can swing significantly on any given day, exposing banks to potential losses during their holding periods.
If ETFs fail to create demand for XRP, I fear a significant decline might be in the cards. The token hit its record high in 2018, and it then lost a whopping 95% of its value. Investors who bought the token near that peak had to wait seven years before breaking even, and I think anyone who buys it today could face an even harsher outcome.
Personally, I believe XRP could be trading lower by as much as 90% a decade from now, as the sheer lack of organic demand for tokens weighs on its value.
