XRP is down big, but so is most of the crypto market. There are valid concerns about whether XRP has a future as a bridge currency on Ripple Payments.
XRP’s drop isn’t due to any significant failures on its part. The downturn has hit the entire crypto market.
XRP’s real-world value is based on its role in Ripple Payments, a payment network for financial institutions. Ripple Payments uses blockchain technology to send cross-border payments quickly and with low transaction fees. Banks that partner with Ripple can also use XRP as a bridge currency, converting payments from the sender’s currency to XRP and then to the recipient’s currency.
It’s an interesting idea, but since XRP’s launch way back in 2012, several problems have emerged. Financial institutions can and often do use Ripple Payments without XRP. Of the 300-plus institutions using Ripple Payments, only a handful also use XRP. Even when cross-border payments involve XRP, it serves a brief role.
The XRP tokens are converted to the destination currency in seconds. Ripple also launched its own stablecoin, Ripple USD, last year, and it currently has a market cap of $1.6 billion. Although it’s possible that XRP and Ripple USD can coexist, Ripple USD theoretically works even better as a bridge currency, since it doesn’t have XRP’s volatility.
Notably, the U.S. Senate Banking Committee is considering the Clarity Act, which would provide a regulatory framework for digital assets. It would classify XRP as a digital commodity and not a security. U.S. banks and asset managers would effectively have the green light to fully integrate XRP into operations, including using it as a bridge currency in international payments.
Even if the Clarity Act passes, there’s no guarantee XRP’s price will increase. Last August, issuer Ripple finally ended its lawsuit with the SEC, but closing that book didn’t provide any positive momentum for XRP.
If you’re bullish on XRP, now is a good time to add to your position. However, given the risk involved, you should avoid making it a significant position in your portfolio.
Consider investing in other cryptocurrencies, such as Bitcoin and Ethereum, as well as cryptocurrency stocks. That way, you can still benefit from a market recovery, even if XRP underperforms.
Before you buy stock in XRP, consider this: The Motley Fool Stock Advisor analyst team just identified what they believe are the 10 best stocks for investors to buy now… and XRP wasn’t one of them.
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