Could This Be the Catalyst That Gets XRP to $5?

XRP (CRYPTO: XRP) has been one of the hottest cryptocurrencies to invest in this year. As recently as November, it was trading at around $0.50. But now it's comfortably above $2, and earlier this year, it hit highs of more than $3.

The Securities and Exchange Commission (SEC) has dropped its lawsuit against Ripple Labs, the company behind the XRP token, in what investors see as a sign of more favorable crypto policies in place under a new administration.

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But could there be yet another possible catalyst, which sends XRP's value even higher? One thing investors are eagerly watching for is whether there will be a spot exchange-traded fund (ETF) coming for XRP.

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Is an XRP spot ETF inevitable?

ETFs that target cryptocurrencies make it easier for regular investors to take positions in digital currencies without worrying about digital wallets and remembering long passwords. And unlike crypto ETFs, which rely on derivatives, a spot ETF will actually hold the digital currency itself, giving investors a more direct way of investing in it.

Bitcoin and Ethereum both have spot ETFs, and the next big cryptocurrency to have one could be XRP.

According to estimates from analysts at Bloomberg, the odds of approval for a spot ETF for XRP this year are as high as 85%. There were hopes that the SEC would have approved an ETF by now, but that decision has been pushed off until mid-June.

The good news is that with a more crypto-friendly government in place under the Trump administration, it seems more of a question of when rather than if an XRP spot ETF hits the market.

Will a spot ETF send the cryptocurrency to new heights?

By reaching a wider pool of investors, the hope is that XRP's value could take off. Unlike most other coins, the cryptocurrency has many useful features, such as improving the efficiency of cross-border transactions. Its XRP Ledger can settle transactions in just three to five seconds. And its costs are low (as little as a fraction of a cent per transaction).

Many investors may be bullish on the potential for XRP but are waiting for a spot ETF as a way to easily add it to their portfolios. That's the hope anyway.

Approval of a spot ETF hasn't always resulted in significant gains for investors. Take Ethereum as an example. A spot Ether ETF began trading on July 23, 2024. Since then, Ether has declined by nearly 50%. Bitcoin, however, has done well since the approval of spot ETFs over a year ago and has hit record highs.

In the case of XRP, it has already experienced a significant run-up in value since Donald Trump's election win in November, rising by more than 300% in just six months. Expecting it to more than double again could be a bit too optimistic, especially since many investors may already be pricing in the ETF approval in the coin's current valuation.

Is XRP a good cryptocurrency to add to your portfolio?

I don't think XRP is going to hit $5 simply due to the approval of a spot ETF. Given how much optimism has surrounded the digital currency this year, I suspect many investors are buying it on the expectation that spot ETFs will be available sooner rather than later.

But even if it doesn't skyrocket in the near future, XRP may still make for a good long-term investment given the potential it has to remove friction from cross-border transactions and the usefulness it has to offer the banking world. There is always going to be some risk with crypto but XRP may be one of the better digital currencies to hang on to for the long run. It won't be suitable for most investors, but if you're a crypto enthusiast and are comfortable with the risk, it may not be too late to invest in it.

Should you invest $1,000 in XRP right now?

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David Jagielski has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Bitcoin, Ethereum, and XRP. The Motley Fool has a disclosure policy.