Not every cryptocurrency has a legitimate use case. Speculative investors are the primary source of demand for many coins and tokens, which is why they are so volatile and rarely hold on to their gains. XRP (XRP 0.68%) is one of the few exceptions, because it was designed as a bridge currency in the Ripple Payments network, which helps banks send money across borders instantly, and with minimal costs.
XRP's creator, Ripple, was in a fierce five-year battle with the U.S. Securities and Exchange Commission (SEC), which started in 2020, based on allegations the company breached financial securities laws. The case significantly hurt the price of XRP, but the regulator backed off entirely earlier this year as part of President Trump's pro-crypto agenda, which sent the token soaring to its highest level since 2018.
XRP still faces a series of other hurdles that could limit further gains. In fact, it's already down by a whopping 39% from its recent peak, and there could be more downside on the way. Here's where I think the token will be in five years.
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A friendly SEC is great for Ripple and XRP
Sending money across borders through the traditional financial system can be slow and expensive, because not all global banks use the same payment infrastructure. Ripple Payments allows banks to settle transactions with one another directly, irrespective of their existing systems, resulting in instant transfers.
XRP can standardize each of those transactions. Rather than an American bank sending U.S. dollars to a foreign bank, it can send XRP, which cuts out costly currency exchange fees. Making a payment with XRP can cost as little as 0.00001 tokens, or a fraction of one U.S. cent.
XRP has a total supply of 100 billion tokens. There are 60 billion in circulation, and Ripple controls the other 40 billion, releasing them gradually to meet demand from institutions. The SEC took issue with this arrangement and argued that XRP should be classified as a financial security, just like a stock, bond, or any other instrument issued by a company. Had the regulator won its 2020 lawsuit, it would have disrupted Ripple's business model, which is why XRP languished below $1 per token for several years.
Fortunately, a judge issued a ruling in favor of Ripple in August 2024. Then, the SEC decided to drop the case completely in August of this year, under the leadership of its new pro-crypto chairman Paul Atkins, who was appointed by President Trump. This was a key reason XRP shot up to a new record price of $3.65 per token.
But a lighter regulatory touch is now benefiting XRP in other ways, too. The SEC is starting to approve spot XRP exchange-traded funds (ETFs), which could create a new source of demand for the cryptocurrency from financial advisors and institutional investors.
CRYPTO: XRP
Key Data Points
Why XRP's latest rally is fading
Unfortunately, XRP's journey to a new record high was very short-lived. It's down 39% from its recent peak for a couple of reasons.
First, banks don't have to use XRP to benefit from instant cross-border transfers through Ripple payments, because the network also supports the use of fiat currencies. Plus, Ripple launched a stablecoin last year called Ripple USD (RLUSD +0.00%), which offers practically zero volatility, so it's better suited as a payment currency for the network. XRP is extremely volatile, leaving banks exposed to sharp losses even if their holding periods are brief.
Second, ETFs might not be as beneficial for XRP as they have been for Bitcoin (BTC +0.52%). Bitcoin is considered a true store of value because it's decentralized, and it has a capped supply of 21 million coins, which creates the perception of scarcity. ETFs filled a gap in the market by giving institutional investors an opportunity to own Bitcoin in a safe and regulated manner. Many of them previously avoided the cryptocurrency because digital wallets are vulnerable to hacks and lacked adequate protections.
XRP doesn't share Bitcoin's most desirable traits (like its decentralized structure or its limited supply), and if it wasn't considered a legitimate store of value previously, then ETFs are unlikely to result in an influx of new investment.
XRP could be heading for another 90% collapse
If the Ripple Payments network isn't a reliable source of ongoing demand for XRP, and investors don't view it as a good store of value, then it's going to be very difficult for the token to hold on to its value. Therefore, its 39% decline over the last few months isn't a surprise.
The flaws I highlighted earlier were present when XRP set its 2018 record high, and less than a year later, it had lost more than 95% of its value. Unfortunately, I think a similar decline is underway right now, which means there could be more downside on the way for investors if history repeats.
As a result, if we look five years into the future, I think there is a very good chance XRP settles well below $1 per token.
