These 2 Numbers Show Why It's Likely For XRP to Hit $3 and Beyond

XRP (CRYPTO: XRP) is a popular cryptocurrency asset for a reason, but most of its investors probably haven't even used it for its intended purpose: transferring money inexpensively and quickly across international borders. Today, its price is about $2.40, though it's likely to surpass $3 sooner or later.

As it turns out, this coin has real utility, and that's what is driving the price gains. Let's walk through a practical example of how using the coin works, and why it's such a game-changer for financial institutions and individuals alike.

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This example is eye-opening

Let's say you want to send $20 to your good friend, who is in another country and who urgently needs some funds in their local bank account.

You could do it the traditional way, which is a SWIFT money transfer. That would cost you anywhere from $20 to $50, and take at least a few business days. You'd also need to pay currency exchange fees, which are billed as a percentage of the total being transferred, and which can sometimes be very burdensome.

Alternatively, you could use XRP.

To do that, you'd first need to buy XRP with your crypto wallet, exchanging fiat currency for the token. Depending on how you on-ramp your money to the blockchain, it's normal to pay a fee of about 1%, which in this case is $0.20, though sometimes on-ramping fees can go as high as 5%. After that, you could send the XRP to your friend's wallet address. That would cost you another fee, which would be on the order of $0.0025 on average -- just a fraction of a single cent. Then, a few seconds later, your friend would have the $20 in XRP, which they could transfer to their bank for perhaps an additional $0.20 in off-ramp fees. This would mean that between the two of you, the total fee burden was just $0.40.

It's those two numbers, $0.40 and $0.0025, that show why it's probably inevitable for XRP's price to climb higher than $3 per token eventually.

Once your capital is on the XRP network, transfers are effectively so cheap that they're free. Transferring trivial amounts of money doesn't change that, so there's no transaction that's too small to be worth doing if it needs doing. That heavily incentivizes a higher volume of transactions across the chain, which generates more fees for the coin, and helps it to gain in value over time.

It isn't very expensive to move money onto or off the network, either. That's why the coin will continue to steal transaction share from SWIFT and other older money transfer technologies.

There's a real value flywheel in effect here

As of Feb. 20, the 24-hour volume of XRP trading was more than $5 billion. Remember, each of the transactions that went into that volume generated a few fractions of a cent.

Now, Ripple, the company that issues XRP, can use the fees it harvested.

One good use is to continue upgrading the network, enabling it to scale to an even higher number of users, and even more transaction volume. Another good use would be to market the coin to financial institutions around the globe so as to get them to buy and hold the coin and use it for their transfers. And given that the alternative for those users is to continue making pricey and slow SWIFT transfers, Ripple's argument is very likely to be persuasive.

As more and more banks use XRP, the amount of the coin held on their balance sheets will grow, which is to say that the coin won't be converted back into fiat currency as frequently on average. That will create a floor for the price, which will in turn make demand for it exert a stronger effect, sending prices higher over time.

There's nothing written in stone that says XRP is going to go above $3 anytime soon. But the investment thesis for this coin is very solid, and it's getting stronger all the time. If you ever have the need to make an international money transfer yourself, you'll see exactly why XRP is gaining popularity.

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Alex Carchidi has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends XRP. The Motley Fool has a disclosure policy.