Where Will the Cryptocurrency XRP Be in 5 Years?

XRP (CRYPTO: XRP) has lost roughly 70% of its value since peaking near $3.65 last July. It now trades just above $1, below where it sat before the Securities and Exchange Commission dropped its case against Ripple and before spot XRP exchange-traded funds -- like the Canary XRP ETF -- launched in the U.S.

Two of the biggest catalysts that bulls had waited years for have come and gone, and the token is below where it started.

And yet Ripple -- the company behind XRP -- has never looked stronger. The company cleared more than $3 trillion through its prime brokerage last year, and it now holds a national trust bank charter.

So why is XRP still down? And where does it go from here? Where will it be in five years?

The bull case misunderstands how banks actually use Ripple

The bull case has always run like this: Banks adopt Ripple's technology, that adoption drives demand for the token, and the price follows. It's a clean story, but it misunderstands how banks actually use Ripple's products.

RippleNet -- the company has rebranded, but I'll use the names people know -- is a settlement system for faster, cheaper cross-border payments. Banks use it without ever touching XRP. This is what the majority of the company's headline banking partnerships actually rely on.

On-Demand Liquidity (ODL) is the product that uses XRP, converting dollars into the token and then into the destination currency. Bulls argue that growing ODL use drives token demand. This has some merit, but I think the effect is smaller than they assume.

ODL mostly serves smaller fintechs and remittance providers. Its volume is a fraction of RippleNet's. And institutions convert in and out of XRP instantly. They don't accumulate it or hold it for long periods.

Ripple's own stablecoin is eating XRP's lunch

And now ODL's already limited impact is being eroded by Ripple itself.

Image source: Getty Images.

The company has pivoted hard toward stablecoins. Its flagship, RLUSD, is growing rapidly, crossing $1.7 billion in market cap in less than two years. And the company is clearly pushing it as a core part of its ecosystem.

Why does that matter? RLUSD can serve as a bridge asset in the same ODL transactions that XRP powers. It provides essentially the same benefits with one all-important difference: stability.

For financial institutions that prize stability above almost everything, that's an easy call.

What XRP still has going for it

XRP is still the native asset of the XRP Ledger, on which RLUSD is issued. The ledger is also being used for things like tokenization of real-world financial assets. More activity on the ledger means more gas (user) fees paid in XRP.

That's real, but in my opinion, it's not enough. It's second-order and a far cry from the argument that banks need to load up on the coin to pay for using the network, a premise that has driven XRP investment for years.

Where XRP will be in five years

In five years, Ripple will still be a thriving payments company, likely serving significantly more of the global financial system, and RLUSD will be a major part of that story.

But what goes for Ripple -- as we've already seen -- doesn't necessarily go for XRP.

Five years from now, I see XRP right around where it is today, having struggled to catch any lasting momentum. Now, I think there may be some hefty price swings within that time -- maybe XRP even crosses $3.50 once again. That's the nature of crypto. But in my view, it won't last.

XRP holders may be asking themselves the same question they are now. Why is Ripple crushing it, but my portfolio hasn't budged?

Bank of America is an advertising partner of Motley Fool Money. 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.