The Case for Buying XRP Before the Next Major Catalyst

The largest gains tend to go to the people who buy while the blueprint for an investment's future is still full of blank spaces. By the time plans are finalized and products are launched, the upside opportunities are usually smaller, even if they're still worth jumping at.

Right now, XRP (CRYPTO: XRP) is in that uncomfortable middle zone. The outline of Ripple's strategy for the coin it issues is visible, but the precise next steps aren't, and so the future outcome is hard to envision. That means there could be a decent return for those who are willing to invest in it before the next set of catalysts, so let's explore why that might be the case.

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Recent catalysts are creating a strong foundation for the future

Before thinking about what comes next, it helps to understand what has been changing recently.

The most obvious recent shift is the arrival of the first U.S. spot XRP exchange-traded fund (ETF), the Canary XRP ETF, which started trading in mid-November and is designed to hold XRP directly. So, there's now a slow but persistent source of new XRP demand, as ETF issuers must hold the underlying asset on behalf of their investors.

On top of that, the XRP Ledger (XRPL) is also starting to see a broader mix of tokenized real-world assets (RWAs) like U.S. Treasuries, private credit, and other financial instruments. Today, the network hosts roughly $238 million of real-world assets that are distributed on-chain. A year ago, there were only around $5 million in RWAs on the chain. And while the current sum is still tiny relative to the global bond or money market universe, not to mention its bigger competitors in crypto, it's still growing fast enough to suggest that the ledger is becoming a lot more than a chain for processing cross-border payments.

The investment thesis is that the ETFs and an expanding base of tokenized assets are planting the seeds for entirely new channels of demand for XRP. But just like seeds planted in a field require periodic (and somewhat unpredictable) rain to germinate and sprout, the best version of the coin's future depends on a few uncertain pieces falling into place.

This chain's roadmap aims directly at tokenized finance

The market for tokenized real-world assets could reach the low trillions of dollars by 2030, with some scenarios stretching as high as $30 trillion. The question is which ledgers will win a meaningful share. And Ripple is positioning the XRPL to be one of them, even though it isn't yet entirely clear how big the market will actually ultimately be or which features customers will be looking for.

That means the asset tokenization trend, as well as any regulations set to govern those assets, is going to be perhaps the largest catalyst for XRP which it has ever seen.

In that vein, the XRPL's new Multi-Purpose Token (MPT) standard is an important clue about where and how Ripple wants to compete. MPTs are a new type of token on XRPL that let asset issuers encode key data like asset class, issuer identity, and supporting documentation directly into on-chain metadata, alongside the network's considerable suite of other asset management capabilities. This design is clearly aimed at winning with regulated financial instruments, where issuers need fine-grained control, and auditors need a transparent data model.

Put together, MPTs and the XRPL's already-formidable compliance tooling turn the ledger into something like a rudimentary operating system for regulated financial tokens, which are likely to be the largest and most widely used category of tokenized assets. For XRP holders, the important element here is that XRP is the native currency of this system.

Therefore, if the RWA market on the XRPL scales from hundreds of millions of dollars to billions and beyond, it is likely that XRP will be dramatically more valuable than it appears today, even if the market never prices in the most optimistic scenarios.

Is XRP worth the risk yet?

Still, buying XRP now is, by definition, accepting uncertainty that later buyers will not face, as the entire RWA segment of crypto is just now starting to emerge, and despite Ripple's best efforts, XRP is not in any way guaranteed to be a victor of the upcoming asset tokenization gold rush. That uncertainty is where the risk premium for this investment lives, and it cuts both ways.

Again, many of the important legal details about asset tokenization in general are not yet settled, nor is it obvious that the field itself is actually valuable. Each time there's a bit more clarity, either from the creation of new laws or rules, or from the development of a consensus about the best business practices involved, those who purchased XRP ahead of time have a chance to benefit -- or potentially, to see their investment lose value if the outcome is unfavorable.

Alex Carchidi has positions in Canary Xrp ETF. The Motley Fool has positions in and recommends XRP. The Motley Fool has a disclosure policy.