Investing in XRP: What to consider
XRP is different than other cryptocurrencies, as it was never created to serve as a standalone currency. The currency was created to serve as a moderation layer when making transactions using the Ripple Lab platform. This means it only exists within the platform and is mainly used to cover transaction fees or as a bridge currency. The Ripple Labs protocol has been adopted by well-known financial institutions due to its low operating costs and quick transaction processing. The XRP token does have a life of its own when it comes to cryptocurrency exchanges and has achieved the impressive feat of becoming a top 5 cryptocurrency. Like many other cryptocurrencies it is highly volatile, sometimes showing double-digit fluctuations in a single day.
Who should include XRP in their portfolios?
Cryptocurrency enthusiasts: XRP is part of the crypto-boom that has been sweeping the market in recent years, and could be considered a good addition to a well-balanced cryptocurrency-based portfolio.
Thematic investors in the financial section: Since XRP is being used by mainstream financial institutions, it could be part of a portfolio based on that sector.
Bitcoin and Ethereum traders: Some factors which influence the XRP token are different than those which impact other currencies. Therefore, it could be used as a hedging tool when investing in other currencies.
Day traders: XRP is highly volatile, and as such, could present many short-term trading opportunities, either for long or short positions.
What drives XRP’s price?
General trends in the cryptocurrency market: Many cryptocurrencies tend to move in tandem and XRP is no exception. XRP prices often relate to other major currencies, such as Bitcoin.
Mainstream adoption: Ripple Labs’s platform serves the need of many financial organisations and other companies within the industry, therefore, whenever it is adopted by another well-recognised brand, it could contribute to its value.
Technological development: Ripple Labs is still considered a startup (although the XRP market cap makes it the fifth most valuable startup in the world), and as such, could introduce many innovations, and could even pivot. Since Ripple Lab holds some 61% of all XRP tokens, major changes within the company could have a strong impact on the currency.
XRP: Disrupting the transaction industry
XRP was created for instantaneous, secure multi-currency transactions, based on a blockchain protocol similar to that of Bitcoin. However, unlike Bitcoin, Ripple Labs has its sights set on disrupting the digital payment industry by reducing both processing times and transaction fees. Moreover, XRP can be used to exchange currencies with other tokens of value, such as frequent flyer miles or mobile phone minutes, using the token as a moderating currency. Since it is in constant use, there is a relatively large number of XRP in circulation, totalling at more than 30 billion tokens.
Ripple Lab’s success is undeniable, with dozens of banks using its services, including international brands such as Bank of America and Santander. While its market cap is in the Billions, the majority of the currency is held by Ripple Labs, which gives it great control over its value. For example, if Ripple Labs decide to raise capital by selling XRP tokens, this could cause a tremendous shift in XRP price, as the market will be flooded with new tokens. However, Ripple Lab CEO Brad Garlinghouse has said that to avoid surprising investors, the introduction of new coins into circulation will be made gradually and with advanced notice.
It’s important to note that XRP’s purpose is a lot more practical than that of Bitcoin. While Bitcoin is mainly seen as an investment tool presently, with its buyers mainly using it as a means of making a profit, Ripple Lab’s XRP token is in constant use on its platform. Therefore, as more and more organisations adopt the platform to conduct business transactions, the token’s price could stabilise and become less volatile.
History of XRP
XRP’s origins date as far back as 2004, when Canadian developer Ryan Fugger created RipplePay, a decentralised monetary system aimed at enabling communities to create their own money. Several years later, a new system was built based on Fugger’s concepts, called OpenCoin. This system enabled quick processing of transactions while consuming less electricity than Bitcoin’s blockchain platform. Any two parties could exchange any currency, including tokens such as frequent flyer miles.
After being incorporated, OpenCoin changed its name to Ripple Labs and soon after started focusing on the banking sector. The Ripple Labs platform enabled banks to process transactions in a fast and secure manner while keeping costs lower. The XRP coin was used on these platforms as a moderating currency when conducting transactions, and the majority of its supply is still being held by Ripple Labs.
XRP’s market cap increased gradually, until skyrocketing as part of the cryptocurrency boom of May 2017, when it crossed the $10 billion mark for the first time. XRP has established itself as top 5 cryptocurrency.
Conclusion: XRP’s strength is in its functionality
With so many cryptocurrencies being created in the past few years, the question of their longevity is highly debated. However, XRP is not at risk of fading away, since its platform is used by major financial institutions, with more constantly implementing its services. This is not necessarily a key factor influencing the XRP currency’s strength, but rather, its stability.
However, when combining its stability with the increasing popularity of the major cryptocurrencies, and considering these currencies often move in conjunction, it could be safe to assume that XRP by Ripple Labs will remain an alluring investment opportunity. Moreover, the fact that it is in constant use gives it liquidity that is rarely seen in the cryptocurrency market.
*This content is for informational and educational purposes only and should not be considered investment advice or an investment recommendation.
*Past performance is not an indication of future results. All trading carries risk. Only risk capital you're prepared to lose.
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