XRP (XRP -2.26%), the native token of the Ripple blockchain, has skyrocketed 480% during the past three months. That stunning rally boosted XRP’s market cap to roughly $180 billion, which made it the world’s third most valuable cryptocurrency, after Bitcoin (BTC) and Ethereum (ETH).
But Dom Kwok, a former Goldman Sachs analyst, recently said that he thought XRP’s value could soon surpass Ethereum’s. For that to happen, XRP’s price would need to rise at least another 120%. Let’s look back at XRP’s past gains and its potential catalysts to see if that can actually happen.
What sets Ripple apart from other cryptocurrencies?
Ripple’s blockchain is used to route real-time payments, remittance transfers, and currency exchange transactions. It promotes its blockchain-based approach as a cheaper, faster, and more secure alternative to the more widely used SWIFT (Society for Worldwide Interbank Financial Telecommunication) protocol for money transfers. Several smaller financial institutions — including Travelex Bank, Tranglo, and Sentbe — already use Ripple’s XCurrent network for their transactions.
When Ripple launched XRP in 2013, it hoped its customers would adopt the token for their financial transactions. However, most of its customers and clients initially shunned XRP and simply used its XCurrent network to process fiat currency payments.
XRP’s earliest trading price was just $0.0058893 per token, but it eventually soared to a record high of $3.84 in January 2018. Like many obscure cryptocurrencies, it got a lift from the market’s growing interest in Bitcoin.
Yet two major challenges drove its price below $0.20 in 2020. First, the U.S. Securities and Exchange Commission (SEC) sued Ripple in 2020 and claimed its initial XRP token sales were illegal sales of unregistered securities. That lawsuit caused the major trading platforms to delist XRP, and Ripple lost many of its partners. Grayscale, one of the biggest crypto asset managers, also shut down its XRP fund, the XRP Trust.
Second, XRP lacks the scarcity and utility of other leading cryptocurrencies. Ripple actually mined its entire supply of 100 billion XRP tokens before its launch, and it locked up more than half of those tokens in escrow accounts across its blockchain. It only periodically releases those tokens into its existing supply (57.7 billion tokens) to stabilize XRP’s liquidity.
Therefore, XRP can’t be actively mined like Bitcoin or other proof of work (PoW) coins. It also can’t be staked for rewards like proof of stake (PoS) tokens like those of Ethereum. And unlike PoS blockchains, Ripple’s blockchain can’t be used to natively develop decentralized apps (dApps), smaller tokens, and other crypto assets. All of those limitations made XRP seem more like a meme coin than a real long-term challenger to Bitcoin and Ethereum.
So why is XRP’s price skyrocketing?
XRP’s biggest headwind dissipated last August after the SEC lawsuit finally concluded with a lighter-than-expected fine. But the SEC appealed that ruling earlier this month, and that pressure prevented XRP’s price from bouncing back.
Yet most of the major crypto trading platforms relisted XRP after that ruling. Grayscale also relaunched its XRP Trust as a new closed-end fund (CEF) for accredited investors, and several firms registered to sponsor their own spot XRP ETFs.
However, the strongest catalyst for XRP kicked in last November when Donald Trump won the U.S. presidential election. Trump plans to loosen the government’s grip on the crypto market, and his recent appointment of the crypto-friendly Mark Uyeda as the acting SEC chair strongly suggests the agency will stop pursuing its case against Ripple.
In December, the New York Department of Financial Services also approved Ripple’s planned launch of a new stablecoin pinned to the U.S. dollar. That approval could draw more financial institutions to its blockchain and stabilize XRP’s price.
To address its lack of a developer ecosystem, Ripple plans to integrate Ethereum-compatible smart contracts into a new sidechain tethered to the XRP ledger, where all transactions are recorded. That move might make XRP payments more appealing to Ethereum-based developers.
To further expand that ecosystem, Ripple has been promoting itself as a platform for tokenizing real-world assets (RWA) like real estate, artworks, and other objects. Unlike non-fungible tokens (NFTs), which are tokenized digital assets, tokenized RWAs grant the owner custody of the underlying physical object. They can also be used to split the ownership of a physical object among multiple token holders. If more of those assets are tokenized, more people could use XRP to buy them.
But will XRP’s price soar another 120%?
Kwok says the relaxed U.S. regulatory environment and the rising use of Ripple as a platform for tokenizing RWAs will drive XRP to overtake Ethereum in the near future. However, I’m not convinced that XRP will become more popular than Ethereum — which is already the foundation of a wide range of tokens, dApps, and NFTs — anytime soon. So while brighter days might be ahead for XRP, I would take this former analyst’s comments with a grain of salt.
— Leo Sun
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Source: The Motley Fool