Should You Buy XRP (Ripple) While It Trades Under $3?

XRP (CRYPTO: XRP) is the native cryptocurrency on the XRP Ledger, a blockchain built by technology company Ripple to enable faster and cheaper cross-border transactions. XRP soared about 500% in the past year, but its price has also declined 15% during the last two weeks, such that the cryptocurrency currently trades at $2.88 as of Feb. 1.

Should investors buy XRP while its price is below (or near) $3? Here are my thoughts.

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Regulatory changes could be a tailwind for the cryptocurrency industry

Under former Chairman Gary Gensler, many pundits argue the Securities and Exchange Commission (SEC) waged a war against cryptocurrency. But recent regulatory changes could be tailwinds for the industry that lead to greater adoption of digital assets.

• The SEC on Jan. 21 formed a cryptocurrency task force that aims to develop a "comprehensive and clear regulatory framework for crypto assets." The press release acknowledged the SEC has primarily relied upon enforcement actions to regulate cryptocurrency retroactively rather than developing rules.
• President Trump on Jan. 23 signed an executive order titled "Strengthening American Leadership in Digital Financial Technology." The executive order established a working group to evaluate the potential creation of a nation digital asset stockpile, which could position the government as a major buyer of cryptocurrency.
• The SEC on Jan. 23 rescinded Staff Accounting Bulletin (SAB) 121, a rule introduced in 2022 that required institutions holding cryptocurrency for customers to treat digital assets as liabilities on their balance sheets. Accounting firm Ernst & Young explains that SAB 121 "effectively prevented banks and other financial institutions from holding digital assets as custodians."

In light of those changes, Morningstar analysts estimate the cryptocurrency market will be worth $7.4 trillion by the end of 2033. That implies 124% upside from the current value of $3.3 trillion, which equates to growth of 9% annually over the next nine years.

I find Morningstar's prediction quite plausible, and I would expect cryptocurrencies with real utility to realize an outsize portion of the gains. XRP satisfies that condition.

Image source: Getty Images.

XRP streamlines international payments and foreign currency exchanges

The SWIFT (Society for Worldwide Interbank Financial Telecommunication) network is currently the most popular system for transferring money internationally. But SWIFT typically routes payments through one or more intermediaries, each of which charges fees, which makes transactions costly and time consuming.

The European Central Bank writes:

"While domestic payments are becoming instant and digital, cross-border payments have yet to benefit from the transformative power of digital technologies. Fees for international payments currently average 1.5% for corporates and as much as 6.3% for remittances. And it can take up to several days for these payments to reach their recipient."

Ripple CEO Brad Garlinghouse says the company aspires to move money seamlessly across borders. Indeed, its blockchain facilitates international payments and foreign currency exchanges in seconds by using XRP as a bridge currency.

Fewer than 200 financial institutions have joined the Ripple network, but some industry experts anticipate greater adoption in the coming years. For instance, CEO of Sound Planning Group David Stryzewski recently told Fox Business that XRP may be the highway most financial systems drive on in the future.

Similarly, former Goldman Sachs analyst Dom Kwok thinks XRP could soon overtake Ethereum as the second-most valuable cryptocurrency. Importantly, XRP's market value of $166 billion would need to increase 125% to match Ethereum's market value of $374 billion. I see two tailwinds that could make Kwok's prediction a reality:

• Ripple recently introduced a stablecoin called RLUSD (Ripple USD), which provides institutions with a less volatile alternative to the XRP token. Importantly, RLUSD could boost XRP demand because the native digital currency is required to pay transaction fees on the Ripple blockchain.
• Multiple asset managers have asked the SEC for permission to create spot XRP ETFs, funds that would track the cryptocurrency's price. Bitcoin has more than doubled since the SEC approved spot Bitcoin ETFs in January 2024. XRP could see similar price appreciation.

Here's is the bottom line: Ripple has designed a payments solution that could create real value for the global financial system. Admittedly, the odds of widespread adoption in the next few years is probably nonexistent. But I do think XRP will be worth more -- perhaps much more -- a decade from now. So, risk-tolerant investors with a long time horizon should consider buying a small position in the cryptocurrency while it's trading around $3.

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Trevor Jennewine has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Bitcoin, Ethereum, Goldman Sachs Group, and XRP. The Motley Fool has a disclosure policy.