This Huge New Catalyst Just Made XRP Pop 12% in 1 Day, But Is It a Buy?

Despite falling by about 20% during the past 30 days, XRP (CRYPTO: XRP) just got a key green light that sent its price soaring by 12% on Feb. 13, with further gains in the days that followed. The best part is that there's now reason to believe that even more growth might be on the way, provided that a few new potential catalysts play out as anticipated.

But what exactly is going on here, and does any of it make the coin a must-buy compared to its appeal to investors before?

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Regulators look like they're increasingly dovish

In late January, the asset manager Grayscale Investments filed with the Securities and Exchange Commission (SEC) to convert its over-the-counter (OTC) traded XRP trust into an exchange-traded fund (ETF). On Feb. 13, the SEC formally accepted the application, marking a major regulatory shift in how the agency chooses to engage with applications for cryptocurrency ETFs, specifically for hypothetical XRP-holding ETFs, which it had eschewed until now.

Though the SEC still has pending litigation against Ripple, the company that issues XRP, there is now concrete evidence that an XRP ETF might eventually be approved, and perhaps soon. Since accepting Grayscale's application, the SEC has also accepted a handful of other XRP ETF proposals from other asset managers, suggesting that there is a high chance that at least one might receive approval. That could be a major catalyst for the coin's price and a key enabler for XRP specifically.

When a cryptocurrency asset is traded via an ETF, investors with traditional financial accounts can effectively buy the coin without needing to go through the hassle of learning how to use tools to buy and hold the crypto directly. That means there could be a lot of new buyers in the form of people who couldn't be bothered to invest before, which would send prices much higher.

For XRP, additional trading volume is a very positive thing.

The issuers of any ETFs will need to buy and hold, and perhaps also sell the coin to offer their ETFs to investors and adjust their reserves to match what investor demand. When they do that, they'll incur fees that are paid to XRP. That will generate more funds for Ripple to upgrade XRP's network or pay for marketing to financial institutions to onboard them as new users. The additional volume will also lead to better price determination across all XRP transactions, which is another beneficial factor for the financial institutions that aim to use XRP at vast scales for making international money transfers.

This is only a strong signal for the most conservative of investors

As mentioned previously, the probable future approval of ETFs holding XRP is unambiguously positive, and the signs that regulators are shifting their approach with the coin are real.

Still, it's important to be critical of new developments and understand how they tie into your investment thesis for buying an asset. Would an XRP ETF really create enduring upward price pressure on the coin such that it would be worth buying if you didn't already hold it?

On that front, the picture is far from clear. When other major cryptocurrencies like Bitcoin and Ethereum saw ETF products approved much like the ones being considered for XRP, their prices did not rise by much at all, and in fact, they fell for a time before eventually trending higher. Nor is it clear that ETF approval is central to the investment thesis for XRP, which calls for it to be used by banks because it helps them reduce costs and the time it takes in international money transfers.

So, for most investors, the ETFs are a bonus tailwind for the coin that might justify an additional purchase here or there, but probably not a major new investment. However, if you're a very conservative investor who hasn't touched cryptocurrency due to its lack of concrete approval from regulators, this could be a sign that it's time to invest, as there aren't too many more ways it could gain governmental approval as a legitimate asset beyond this.

Just make sure that you're willing to hold your coins (or your shares of the ETF) for a number of years because that's how long it will take for the actual investment thesis for XRP to play out and generate value for you.

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Alex Carchidi has positions in Bitcoin and Ethereum. The Motley Fool has positions in and recommends Bitcoin, Ethereum, and XRP. The Motley Fool has a disclosure policy.