The Bear Case for XRP That Every Investor Should Understand

XRP (CRYPTO: XRP) continues to attract attention as a high-upside cryptocurrency that can go absolutely ballistic. Even though it is trading for just north of $1, it's not uncommon to find XRP price targets as high as $100. So the bull case for XRP is well known.

However, the bear case for XRP is not as well understood. Unfortunately, XRP has a high probability of dipping below $1 this year. And from there, XRP could easily collapse in value.

Did stablecoins kill XRP?

The rapid uptick in the use of stablecoins since 2020 has had a direct impact on how investors view XRP. These dollar-pegged digital currencies are now worth upward of $300 billion, and U.S. Treasury Secretary Scott Bessent expects the stablecoin market to be worth $3 trillion by 2030. Meanwhile, XRP seems to be going nowhere fast.

Stablecoins are able to take on many of the same functions as XRP, especially when it comes to making cross-border payments. Moreover, stablecoins always trade at $1, whereas XRP can vary widely in price. For that reason, stablecoins are a much more stable way of doing business if you're moving a lot of money around.

Image source: Getty Images.

This has not gone unnoticed by Ripple, the company behind the XRP token. In December 2024, Ripple launched a stablecoin of its own called Ripple USD (CRYPTO: RLUSD). This stablecoin is now valued at $1.7 billion, just 18 months after launch. In fact, as soon as Ripple USD launched, some analysts theorized that it might cannibalize XRP's value.

XRP's coin supply

XRP's massive circulating coin supply is another reason to be concerned. Right now, it is 62 billion. By way of comparison, the circulating supply of Bitcoin (CRYPTO: BTC) is just 20 million.

Let's assume that XRP makes another run at $4, just as it did last year. That would imply a market cap of $250 billion, more than the market cap of Ethereum (CRYPTO: ETH), which is currently valued at $240 billion.

That helps to explain why XRP ran into a brick wall as soon as it approached $4. For XRP to go any higher, crypto investors would need to acknowledge that XRP is a more valuable cryptocurrency than Ethereum. That's highly unlikely.

Also, while the circulating supply is 62 billion, the maximum lifetime supply is 100 billion, so there's plenty more XRP just waiting to flow into the market. Ripple has done a reasonably good job of managing XRP's coin supply. In June 2021, the circulating supply was 46 billion. So over the past five years, XRP's coin supply has grown at an annual rate of 6%.

But what if the pace of institutional adoption takes off? The coin supply might need to increase vastly, putting a tighter cap on the future price of XRP.

Investors should be aware of these hidden risks of investing in XRP. Unfortunately, cryptocurrencies can and do collapse in value, never to recover.

Dominic Basulto has positions in Bitcoin, Ethereum, and XRP. The Motley Fool has positions in and recommends Bitcoin, Ethereum, and XRP. The Motley Fool has a disclosure policy.