Ripple’s national bank charter pursuit has created short-term momentum, but long-term fundamentals remain shaky.
Ripple’s RLUSD could cannibalize XRP’s role as a bridge asset in ODL transactions.
Up more than 400% this year, XRP(CRYPTO: XRP) could easily continue its rally over the next year. The regulatory cloud once hanging over Ripple, the token’s creator, has lifted, and now Ripple is pursuing a national bank charter. If granted, this would undoubtedly add legitimacy in the eyes of investors.
I’m not sure that these gains will last, however.
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The bull thesis for XRP hinges on banking adoption. More institutions using Ripple’s technology should theoretically mean more demand for the token — and higher prices. The key assumption here is that banks need to acquire XRP to use Ripple’s products, but unfortunately for XRP bulls, they don’t.
RippleNet, Ripple’s flagship product, works perfectly well without the need for banks to touch XRP. And while its other primary product, On-Demand Liquidity (ODL), does incorporate XRP as a bridge asset, it remains a comparatively niche solution for liquidity-constrained institutions. The larger banks that actually matter haven’t adopted it widely, which severely limits its impact on XRP demand.
And the issue could get worse. Ripple recently acquired a stablecoin payment firm for $200 million; Ripple’s national banking charter application, while it appears bullish, indicates to me that Ripple is interested in making stablecoins a central focus. It’s entirely possible that use of its stablecoin RLUSD could erode demand pressure for XRP further, making RLUSD the preferred bridge asset in ODL transactions.
So while XRP might surge in the short term, for investors looking for lasting returns, look elsewhere.
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Johnny Rice 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.
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