Despite being an extremely volatile asset, as is this case with all cryptocurrencies, XRP (CRYPTO: XRP) has seen significant price appreciation since its launch. It does, however, trade 84% off its 2018 record high.
As of this writing, XRP carries a market cap of $34.6 billion. But can it rise 29-fold to become a trillion-dollar cryptocurrency by 2040? Here's what investors should know.
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Targeting cross-border payments
I don't believe it's a stretch to say that almost all cryptocurrencies are a waste of time, money, and effort. In fact, they are probably on their way to eventually becoming worthless, as their creators and developers are simply looking for a way to cash in on a new tech trend.
For any cryptocurrency to have any shot at long-term success and viability, it must figure out how to introduce real-world utility and bring value to people. Here's where XRP is attempting to stand out from the crowd.
XRP is a digital token whose purpose is to facilitate cross-border payment transactions. Imagine someone in the U.S. that wants to send money to a relative in India, for example. They would convert dollars into XRP and send them to the person in India using the XRP blockchain, after which they would be converted to Indian rupees. XRP says it can settle thousands of transactions in seconds, and they cost fractions of a penny. That seems like a winning solution to what is otherwise a slow and expensive process.
According to Migration Data Portal, $857 billion was sent via remittances in 2023. That's a massive dollar sum. However, I'd argue the amount of money flowing between countries among corporations and governments is probably multiples of that, measured in the trillions of dollars. If XRP can somehow capture even just a tiny fraction of the money that moves across borders between all of their stakeholders, demand for the token and its price could rise over time.
Risks that are hard to ignore
XRP is aiming to disrupt financial services. But that doesn't mean it's without any notable risks to its ultimate success. I think investors should be mindful of some downside factors.
This cryptocurrency still faces regulatory uncertainty. While it settled with the Securities and Exchange Commission for a much smaller amount than what was previously proposed, for the accusation that XRP's sales of tokens to institutional investors was against the law, the agency has appealed the decision. It could be a long process before there's a resolution.
As with any new technology, such as blockchain and cryptocurrencies, there is technical risk as well. Is the XRP network capable of handling a significantly larger volume of transactions with many more stakeholders in the future without any operational hiccups? I'm not sure anyone knows the answer to that question. This adds more uncertainty.
Will XRP reach $1 trillion?
For XRP's market cap to go from $35 billion today to $1 trillion in 16 years, it would need to increase at an annualized pace of over 23%. While that would most likely outperform the stock market's return by a wide margin, it would certainly be a smaller gain than what XRP has produced historically. As the asset matures, this perspective is reasonable.
But to be clear, I don't believe the token will get to the $1 trillion mark, which currently only Bitcoin has surpassed, by 2040. I'd also be critical of XRP reaching that valuation ever. In my opinion, there is so much uncertainty as to XRP's ultimate adoption and success. And the fact that it has seriously underperformed Bitcoin this year could be a clear indication that the market is losing interest in XRP.
I believe investors that are bullish on XRP and that have a much higher risk tolerance are the only ones that should consider buying this cryptocurrency right now, particularly as part of a well-diversified portfolio. However, I'm not one of those investors.
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