Up 350% in 12 Months: Is XRP Still Worth Buying?

XRP (CRYPTO: XRP), the native cryptocurrency of the open source XRP blockchain, has surged about 350% during the past 12 months. But should investors still buy XRP after that jaw-dropping rally? Let's review the bull and bear cases to decide.

Reviewing XRP's wild ride over the past 13 years

David Schwartz, Jed McCaleb, and Arthur Britto -- who co-founded the fintech company Ripple Labs -- created XRP in 2012. The three founders used XRP to fund Ripple's expansion, so Ripple became the largest single holder of XRP but didn't actually control its open source Ledger.

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XRP's entire supply of 100 billion tokens was pre-mined before its launch, and Ripple locked up more than half of its tokens in escrow accounts. Ripple periodically releases those tokens to stabilize its liquidity.

However, XRP can't be actively mined like Bitcoin (CRYPTO: BTC) or other proof of work (PoW) tokens, and it doesn't support smart contracts for developing decentralized apps (dApps) like Ethereum (CRYPTO: ETH) and other proof of stake (PoS) blockchains.

Ripple initially promoted the usage of its XCurrent network as a cheaper, faster, and more secure alternative to the widely used SWIFT (Society for Worldwide Interbank Financial Telecommunication) protocol for money transfers. Several smaller financial institutions -- including Travelex Bank, Tranglo, and Sentbe -- adopted XCurrent for their money transfers.

Ripple likely hoped that some of those customers would adopt XRP as an alternative to fiat currencies for their cross-border transactions. However, XRP's volatility, regulatory challenges, and conservative banking strategies limited its appeal.

Ripple sold about $1.3 billion in XRP tokens in a series of coin offerings, but the U.S. Securities and Exchange Commission (SEC) sued the company in 2020 and accused it of illegally selling unregistered securities.

That lawsuit caused Ripple to lose some of its top customers. Several crypto exchanges also delisted XRP and crypto asset manager Grayscale suspended its XRP Trust. Those headwinds made XRP a tough cryptocurrency to love. But last August, its battle with the SEC ended with a lower-than-expected fine. The SEC's subsequent efforts to pursue its case fizzled out, and the two parties reached a final settlement earlier this month.

After the regulators backed off, the major crypto exchanges relisted XRP, Grayscale relaunched its XRP Trust as a closed end fund (CEF) for accredited investors, and several crypto firms submitted their applications for new XRP spot price exchanged-traded funds (ETFs). Declining interest rates and the ascension of the crypto-friendly Trump administration brought back even more investors.

What are XRP's near-term catalysts?

XRP's biggest near-term headwinds are dissipating, but it also has a few potential catalysts on the horizon. The approvals of its first spot price ETFs could validate XRP's existence and stabilize its price by attracting more mainstream and institutional investors.

There have also been persistent rumors of a Ripple initial public offering (IPO). If Ripple actually goes public, it could generate more buzz for XRP and fresh funds for expanding the XRP Ledger.

To expand its reach, Ripple plans to upgrade its on-demand liquidity (ODL) feature, which lets users directly use XRP for cross-border transactions across Africa, Latin America, and the Middle East. That expansion could attract new partnerships with more banks and money transfer companies.

To attract more developers, it plans to add more hooks (small snippets of code for enabling smart contract features) to the XRP Ledger. It could also integrate more sidechains (independent blockchains) for integrating Ethereum Virtual Machine (EVM) features, decentralized finance (DeFi) protocols, dApps, and non-fungible tokens (NFTs) into its ecosystem.

So is XRP still worth buying?

XRP's biggest headwind was the SEC's protracted lawsuit. But now that that lawsuit is finally over, its long-term future looks a bit murky. It can't be actively mined, its blockchain can't be natively used to develop dApps, and most financial institutions aren't eager to adopt XRP transfers.

In other words, XRP might struggle to outshine Bitcoin or Ethereum over the long term. It's deflationary by design, but its limited appeal among developers and financial institutions make it a risky investment. It might be worth nibbling on if you expect XRP ETFs or Ripple's IPO to hit the market, but investors shouldn't expect to replicate its huge gains from the past 12 months.

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

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Leo Sun 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.