Sunday, 8 September 2024
by BD Banks
Cryptocurrencies, specifically altcoins like Ripple (CRYPTO: XRP), also known as XRP, are among the riskiest assets you can invest in. Ripple has been especially tough due to a years-long lawsuit between its creators and the SEC, a saga finally nearing its end. The price of XRP coins is notably higher following the court’s rulings earlier this summer, but prices still sit well below their all-time high.
So, what is Ripple’s long-term upside with these lawsuits mostly behind it?
Does Ripple have what it takes to create Bitcoin-like, life-changing wealth for those willing to hold it long-term?
Here is what you need to know.
Ripple has real potential in the modern economy. Ripple Labs created the Ripple blockchain as a payment network for cross-border transactions. As great as technology is in 2024, cross-border transactions are still somewhat cumbersome. They are slow and expensive, they contain numerous fees, and they can take as long as four business days.
A transaction placed on Ripple will convert from one currency to the XRP, Ripple’s cryptocurrency token, and then to another currency on the other side of the transaction. Suppose you’re in America and want to send someone money in Japan. Through the Ripple network, your dollar-denominated payment will convert to XRP, then that XRP will convert to Japanese Yen on the other side.
Fees can add between $15 and $45 to each cross-border payment, but Ripple transactions cost fractions of a penny on average. Plus, Ripple can finalize the transaction in seconds, not days.
Like many cryptocurrencies, supply and demand will determine XRP’s long-term prices. The good news is that Ripple has capped XRP’s supply at 100 billion tokens. On the demand side, Ripple’s adoption will ultimately determine its success and XRP’s investment potential. Ripple competes with a powerful entity called the Society for Worldwide Interbank Financial Telecommunications (SWIFT). It’s a co-op financial messaging system that facilitates cross-border transactions worldwide.
SWIFT benefits from a network effect — a competitive moat that makes it strong because so many institutions use it. Approximately 11,000 financial institutions worldwide use SWIFT daily to send over 44 million money-transfer messages. The million-dollar question is whether Ripple can meaningfully eat into this dominance.
As I mentioned before, Ripple is still trading well below its all-time high, even after a generally favorable outcome with its court battle with the SEC:
Ripple did see a nice boost, but more banks using Ripple is what will ultimately drive its price higher. The lawsuit outcome helps remove a dark cloud that likely discouraged financial institutions from using it for cross-border commerce as intended. Now, Ripple could see usage pick up, potentially driving the price up. However, investors may need patience; the SEC will likely appeal the rulings, so this isn’t completely done yet.
Looking at the big picture, many big banks already use Ripple, so there is some momentum behind it.
But is Ripple a life-changing investment opportunity?
That’s difficult to say. Even if Ripple surged to all-time highs, it wouldn’t produce the staggering returns needed, likely thousands of percentage points, to turn a modest investment into a million dollars. On the other hand, Ripple is still a speculative asset, so it wouldn’t be wise to invest a huge amount, either. That leaves investors somewhere in the middle. Sure, it can be a profitable investment if things work out, but calling it a million-dollar opportunity seems like a stretch at this point. It’s better off as a small piece of a diversified portfolio.
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Justin Pope has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Bitcoin and XRP. The Motley Fool has a disclosure policy.