Key Points
Banks can use Ripple's XRP Ledger and XRP cryptocurrency to send money around the world instantly.
But XRP is losing ground to better alternatives like stablecoins, which offer practically zero volatility.
XRP is down by more than 60% from its peak, and I predict it will be trading below $1 in 12 months from now.
Banks and financial institutions can use the XRP (CRYPTO: XRP) cryptocurrency to send money across borders via the XRP Ledger, a unique blockchain created by Ripple. Transactions settle practically instantly, and attract minimal costs compared to sending money using traditional payment rails.
Back in June, Ripple introduced an upgrade to the XRP Ledger that fixed bugs and reduced memory consumption, so processing transactions is now faster and cheaper than ever. But it didn't do much to lift the value of XRP, which is down 64% from last year's record high of $3.65 per token as I write this (Oct. 26).
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Unfortunately, XRP faces a series of structural issues that will be difficult to overcome, so here's why I predict it will fall even further over the next 12 months.
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XRP might be fading into irrelevance
The global financial system is highly fragmented, because not all banks around the world have direct relationships, so they have to use intermediaries (correspondent banks that serve as middlemen) when sending money to one another. This adds costs and slows down the settlement process.
Ripple's payment network solves that problem by serving as a direct line of communication between banks. It processes payments using the XRP Ledger which is capable of moving money around the world within seconds, and banks have the option to use XRP as a bridge currency to keep costs down.
For example, an American bank can convert U.S. dollars into XRP tokens and send them to a Spanish bank, where they will be converted into Euros upon receipt. This process can cost as little as 0.00001 XRP tokens (a fraction of one U.S. cent), well below what the banks would otherwise pay in traditional foreign exchange fees.
But XRP is no longer central to Ripple's payment network. In late 2024, the company launched a U.S. dollar-denominated stablecoin called Ripple USD (CRYPTO: RLUSD), which experiences practically zero volatility. That means banks don't have to worry about the coin losing value if they need to hold it for an extended period of time, whereas the price of XRP can fluctuate significantly on a day-to-day basis.
Plus, many countries across Asia, Europe, and the Americas already have regulatory frameworks in place for stablecoins, adding an extra layer of safety for banks and financial institutions.
Ripple USD runs on the XRP Ledger, so transaction fees must be paid in XRP tokens, which will serve as a continued source of organic demand. Therefore, the cryptocurrency isn't entirely redundant, but its upside could be limited from here as stablecoins like Ripple USD capture a larger share of transaction volume because of their superior qualities.
I predict XRP will be trading below $1 in 12 months
XRP was never designed to deliver steady returns -- in fact, it wasn't designed to be an investment at all. Bridge currencies aren't necessarily supposed to rise in value, because there is almost always an equal seller for every buyer.
In my earlier example, the American bank would be a buyer of XRP, but the Spanish bank would be an equal seller when it converts its tokens into Euros upon receipt. Therefore, this transaction would create almost no value.
Most of XRP's rallies to date were driven by speculative investors, who typically don't stick around if they aren't making fast returns. That explains why every spell of upside has been followed by a spectacular crash. The first time XRP soared to over $3 per token in 2018, it wound up losing over 95% of its value, eventually bottoming at around $0.14 during 2020.
XRP is already down 64% from last year's record high of $3.65, so a similar decline this time around could see the token fall as low as $0.18. I'm not predicting that will happen, because organic demand is likely to remain higher than it was in 2018, even if the token is only used to cover transaction fees.
However, I think the latest drawdown still has legs, so I predict XRP will be trading below $1 in 12 months from now.
Anthony Di Pizio 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.