XRP (XRP 0.31%), the digital currency of the Ripple blockchain, has taken its investors on a wild ride since its market debut in 2013. It started trading at $0.0058893, soared to an all-time high of $3.84 in early 2018, but now trades at about $0.60.
In other words, a $10,000 investment would have grown to $6.52 million before shrinking back to $1.02 million today. That’s already an incredible 11-year gain, but several catalysts might drive its price even higher over the next decade.
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Why did XRP’s price soar during the past decade?
Back in 2012, a start-up called Opencoin (now known as Ripple Labs) launched its blockchain-based Ripple payment network. It promoted the network as a faster and cheaper alternative to the SWIFT (Society for Worldwide Interbank Financial Telecommunication) payment protocol used by most financial institutions.
Ripple claimed its protocol could facilitate secure, instant, and “nearly free global financial transactions of any size with no chargebacks,” and it initially drew in smaller financial institutions like Travelex Bank, Tranglo, and Sentbe. It’s mainly used to route real-time payments, remittance transfers, and currency exchange transactions.
Ripple subsequently created 100 billion XRP tokens — with the hope its native cryptocurrency could complement or replace its fiat currency transactions — and launched its initial coin offering (ICO) in 2013. It locked up 55 billion of those tokens in escrow accounts across its blockchain in 2017, and it periodically releases them to stabilize its supply and liquidity.
Most of Ripple’s financial customers didn’t adopt XRP for their mainstream transactions, but the market’s growing interest in Bitcoin (BTC -0.18%) and other cryptocurrencies drove a new wave of investors toward smaller so-called altcoins. That’s why XRP’s price hit a record high in 2018.
But in 2020, the U.S. Securities and Exchange Commission (SEC) sued Ripple and alleged that its ICO and token offerings for XRP were illegal sales of unregistered securities. That lawsuit ended XRP’s rally and drove away the bulls, and rising interest rates exacerbated that pressure by driving investors away from cryptocurrencies and other speculative investments.
However, the SEC lawsuit finally ended this August with a smaller-than-expected settlement of $125 million. That ruling eliminated the biggest near-term headwind for XRP, but its price has been little changed since that long-awaited victory.
What catalysts could drive XRP’s price higher?
XRP is still being held back by unfavorable comparisons to Bitcoin, which the SEC considers a commodity because it can still be digitally mined, and tokens based on Ethereum (ETH -0.35%), which can tap smart contracts to create decentralized apps (dApps). XRP can’t be mined anymore, and its blockchain doesn’t natively support smart contracts.
The SEC’s approvals of the first spot price exchange-traded funds (ETFs) for Bitcoin and Ether earlier this year also suggested those two “blue chip” cryptocurrencies were more reliable long-term investments than XRP or other smaller altcoins. High interest rates also limited the growth of the cryptocurrency market during the past year.
But several of those headwinds could be replaced by tailwinds. To attract more developers, Ripple plans to integrate Ethereum-compatible smart contracts into a new sidechain tethered to the XRP Ledger. Grayscale also recently relaunched its XRP Trust (after shutting it down in 2021 in response to the SEC lawsuit) as a closed-end fund (CEF) for accredited investors, and that move could pave the way for the eventual approval and launch of XRP’s first spot price ETF.
Robinhood (HOOD -0.13%), which delisted XRP after the SEC lawsuit, recently relisted the token on its commission-free trading platform. Ripple has also integrated XRP into the Federal Reserve’s new FedNow instant payment platform, which it’s promoting as a faster and cheaper alternative to SWIFT and traditional card payment networks. That integration could further stabilize and boost XRP’s price. The Fed’s recent interest rate cut could amplify those gains.
XRP will remain a speculative and volatile cryptocurrency, but some green shoots are appearing. Therefore, investors who buy some XRP today and ignore all the near-term noise might rack up some impressive gains during the next few years.
Leo Sun has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Bitcoin, Ethereum, and XRP. The Motley Fool has a disclosure policy.