Cryptocurrencies have minted millionaires over the past several years, leaving some crypto investors wondering if they put their money on the right coin at the right time, could it happen to them, too? And one coin that's got investors' hopes up is XRP (XRP +0.02%), which was created by Ripple Labs.
XRP's value has fluctuated drastically lately, like that of other cryptocurrencies, but during the past three years, its price has increased by more than 400%. Why has it been so successful, and could further price spikes mint millionaires? Most likely not. Here's why it's unlikely, but why owning some XRP in your digital wallet may not be a bad idea.
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The simple math simply doesn't add up
Most crypto investors looking to become millionaires aren't thinking about long-term investing strategies, such as buying a stock or cryptocurrency and gradually adding to their position over time, until they've achieved investments worth $1 million. Instead, many are hoping to essentially place a bet on a coin and hope that its value soars.
The problem with this strategy, aside from it being akin to gambling rather than investing, is that XRP's market cap is already about $125 billion. If you were to take $20,000 and use it to buy as much XRP as possible, you'd need that initial investment to increase 50 times to become a millionaire.
That means XRP's market value would have to rise from about $125 billion right now to more than $6.2 trillion -- which is more than the market caps of Nvidia and Tesla combined. Good luck with that.
There are some good reasons to be optimistic about XRP's rise
Although XRP won't make you a millionaire, there are a few reasons buying and holding the coin may not be a bad idea. For one, the recent launch of an XRP exchange-traded fund (ETF) has made it easier for people to have exposure to its price movements.
Cryptocurrency ETFs have been beneficial for Bitcoin and Ethereum, making it easier to invest in the coins and attracting billions of dollars in investments. Over the long term, the XRP ETF could help drive the price higher as more people discover how easy it is to invest in cryptocurrency.
CRYPTO: XRP
Key Data Points
Furthermore, Ripple recently secured $500 million in a capital funding round, which came from prominent Wall Street investment firms, including affiliates of Citadel Securities and Fortress Investment Group. The amount of money, combined with the presence of big names in the investing world, is a sign that traditional financial institutions are warming up to crypto and see potential real-world value in XRP.
The $500 million from the share sale gives Ripple the ability to expand its fintech services, adding to its six acquisitions during the past two years. That's on top of a recent pilot program that was announced with Mastercard to settle financial transactions using the XRP Ledger, which also helps XRP gain more credibility from the broader financial world.
XRP's value could be choppy in the short term
Investors are trying to figure out the many moving pieces in the economy right now. Some tariffs remain a long-term issue for companies; layoffs are on the rise; and yet consumers continue to spend. Investors are optimistic about the market but also worry that an artificial intelligence (AI) bubble is forming.
This uncertainty has led to a decline in speculative investments, including cryptocurrencies, recently. XRP has declined by 33% during the past three months, and further short-term pain may be ahead if the economy slows.
That's not a warning against owning some XRP, but just be prepared for more volatility ahead -- and be ready to buy XRP if you're bullish on its long-term prospects.
