Is the Cryptocurrency XRP (Ripple) a Millionaire-Maker?

With Bitcoin hitting new records, some investors wonder if XRP (CRYPTO: XRP) could be the next big winner. Is now the time to bet on XRP's comeback--or is the millionaire-maker story mostly hype?

XRP is legit

Let's start with the basics. XRP is a legitimate digital asset with real, tangible use cases. It enjoys relatively widespread adoption from both retail traders and institutional investors. That alone makes XRP stand out; the crypto market is, unfortunately, chock-full of tokens that range from frivolous to fraudulent. XRP is neither.

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Ripple Labs -- the private company that created XRP and offers products that make use of it -- has partnerships with major financial institutions like Bank of America and JPMorgan Chase. It's clear that the technology works and is secure; institutions such as these would not touch it if it were otherwise.

The primary driver of XRP's growth is the strength of these institutional partnerships -- at least, that is the idea. If major institutions such as these use Ripple Labs' products, they would need to stockpile XRP in order to transact with it. Right?

Most banks don't have a need for XRP

There's a catch here, and an important one for understanding XRP's real value. Ripple Labs offers two primary products with very different relationships to XRP itself: RippleNet and On-Demand Liquidity (ODL).

ODL is designed to help facilitate cross-border transactions and requires its users to hold XRP. With ODL, XRP is used as a bridge currency. The problem is that the majority of Ripple Labs' bank partners -- and all of the major ones like Bank of America -- don't have a need for ODL. They use RippleNet, which facilitates settlements between banks using Ripple's technology, but not XRP itself. ODL is the go-to when liquidity is an issue, and major financial institutions don't usually have that problem.

That means that even as the adoption of RippleNet grows, it does not lead to demand pressure for XRP. Big banks are using technology adjacent to XRP, not XRP itself.

Stablecoins could further disrupt the market

Where direct adoption of XRP by large financial institutions hasn't materialized, it's clear they are not averse to using crypto at all. Stablecoins offer many of the advantages of XRP -- speed, cost, in-built recordkeeping -- without its worst quality, volatility. A bank takes on huge risk by holding any significant portion of XRP at any given time since the token can lose 10% of its value at the drop of a hat.

Image source: Getty Images.

Stablecoins, as the name suggests, don't fluctuate in price -- at least not meaningfully. They are much closer to true digital cash. We're seeing a ton of interest from banks and even legislators; a bill allowing banks to use stablecoins is working its way through Congress and has rare bipartisan support.

It's likely why RippleLabs introduced its own stablecoin and recently made a multibillion-dollar bid for Circle Internet, which issues the much more successful USDC stablecoin.

Is XRP a millionaire-maker?

The idea of finding the next millionaire-maker is exciting, no doubt, but it's important not to get ahead of yourself. Real millionaire making is about careful, sustained investment over the long haul across a diverse range of stocks. It might not be as flashy, but it works. Chasing a single millionaire-maker is more likely to get you into trouble than deliver the returns you're looking for. It makes it much easier to get caught up in hype rather than the fundamentals that work.

And I think there is a whole lot of hype surrounding XRP. Given what I've laid out, I think it's unlikely we will see the ubiquitous and widespread adoption from the banking industry needed to drive serious growth, and investors would do well to look elsewhere.

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

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JPMorgan Chase is an advertising partner of Motley Fool Money. 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 Bank of America, JPMorgan Chase, and XRP. The Motley Fool has a disclosure policy.