Ripple has massive theoretical upside, but investors should be aware of key risks.
Ripple (XRP 2.40%) is skyrocketing in value once again. Over the past 12 months, Ripple’s value has zoomed higher by more than 400%.
Looking at some key metrics, it’s clear that the price of XRP can continue to climb heavily for years on end. But how high could XRP’s value really soar? Could a $500 investment turn into $50,000 by 2030? The answer to this question will surprise you. Let’s look at the numbers.
What is Ripple’s highest theoretical value?
The primary driver behind Ripple’s long-term value is its ability to replace the global SWIFT system. SWIFT stands for Society for Worldwide Interbank Financial Telecommunication. It’s essentially a network of processes and protocols that financial institutions have agreed to in order to standardize money transfers.
Since its introduction in 2015, Ripple has struggled to replace the SWIFT system in any meaningful way. It has signed on a growing list of financial institutions that are using its network for pilot programs and smaller transfer use cases. But a decade after Ripple launched, SWIFT remains dominant worldwide.
According to Ripple’s CEO, Brad Garlinghouse, all of this could change over the next five years. By 2030, he predicts Ripple will capture 14% of SWIFT’s global cross-border volume. “There are two parts to SWIFT today: messaging and liquidity,” Garlinghouse told a conference audience earlier this year. “I think less about the messaging and more about liquidity. If you’re driving all the liquidity, it is good for XRP. So I’ll say five years, 14%.”
It’s hard to understate how massive this would be. According to some estimates, a 14% share would result in $21 trillion annual transaction volumes for Ripple. For comparison, RippleNet is currently processing annual transaction volume measured in the billions of dollars, not trillions. If Garlinghouse’s prediction comes true, Ripple will go from a rising crypto star to a bonafide global financial powerhouse by the year 2030.
Image source: Getty Images.
Should you buy more XRP today?
How will all of this impact XRP’s price? Will it be enough to turn a $500 investment into $50,000? It’s actually fairly difficult to estimate XRP’s value even if it does capture 14% of SWIFT’s transaction volumes. That’s because the utility value of XRP is based on several complex factors including velocity and liquidity demand.
Some analysts have run bear- and bull-case scenarios which predict a theoretical price between $25 and $170, which is significantly higher than today’s trading range of $2 to $4. But these assumptions assume Ripple captures 14% of all SWIFT volumes, not just its cross-border volumes. Plus, these assumptions factor in various numbers for velocity and liquidity demand that could stray far from reality.
In summary, Ripple remains an incredibly speculative asset. Not only does the project have a long way to go to justify its current $200 billion valuation from a utility standpoint, but models predicting potential price growth for XRP rely on assumptions that are far less knowable than the standard discounted cash-flow model used for valuing traditional stocks.
Should you buy more XRP today? If you believe in the long-term story, Ripple remains a promising speculative bet with lots of theoretical upside. But its near-term value will largely be based on market conditions and investor sentiment — not on true fundamentals.
Ryan Vanzo 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.
