For a long time, Ethereum (ETH) has been the second-largest cryptocurrency by market capitalization, second only to Bitcoin.
Since then, many companies have launched their own blockchains and tokens optimized for specific use cases. One of the most successful projects among them is Ripple’s XRP Ledger. This ledger is designed to enable fast, low-cost financial transfers, and Ripple has spent years promoting its adoption among banks and other financial institutions. Each transaction on the XRP Ledger consumes a small amount of the native token XRP (XRP), while XRP also serves as a bridge currency for cross-border transactions.
Ripple CEO Brad Garlinghouse recently stated that with the widespread adoption of its blockchain technology, XRP is expected to surpass Ethereum to become the second-largest digital asset by market capitalization. Although Garlinghouse’s view carries obvious subjective bias, there are still reasons to be optimistic about XRP in the market.
Ripple itself is growing rapidly, driven on one hand by its own technological innovations, and on the other hand primarily through acquisitions. The company has acquired clearing and prime brokerage firm Hidden Road for $1.25 billion, purchased cash management platform GTreasury for $1 billion, and strengthened its stablecoin business through the Rail transaction. Ripple is committed to building a business system that can meet the various needs of financial institutions, in order to drive adoption of its blockchain.
Several trends may also boost adoption, including the tokenization of real-world assets, the proliferation of stablecoins (including Ripple’s RLUSD), an improving regulatory environment, and the U.S. Securities and Exchange Commission’s (SEC) de facto recognition of blockchain technology — the same agency that previously sued Ripple.
Thanks to its association with Ripple and the XRP Ledger, XRP, as a token with practical utility, is well-positioned to capitalize on these trends. If Ripple can effectively increase activity on its blockchain, demand for the XRP token will strengthen accordingly. Although Ripple continues to dilute the total supply of XRP, growth in usage of the XRP Ledger is expected to offset this effect — because each transaction consumes a certain amount of XRP.
As of the time of writing, XRP is the fourth-largest cryptocurrency by market capitalization, with a market cap of approximately $88 billion. Ethereum’s market cap is approximately $282 billion. This means that, assuming Ethereum’s price remains unchanged (though this is highly unlikely), XRP would need to rise above $4.58 to achieve the overtake.
Beyond fundamental factors, the proliferation of spot ETFs may also drive XRP’s price higher. The XRP ETF was launched last November and has since seen strong inflows, now exceeding $1 billion.
However, this figure pales in comparison to the nearly $12 billion in inflows into Ethereum ETFs. In other words, institutional investors may still be lagging in increasing their XRP holdings through ETFs relative to other cryptocurrencies. Nevertheless, this helps reduce the circulating supply of XRP, thereby enhancing its value.
Although there are many reasons for XRP to rise from its current level, some constraints remain. Ripple is laying the groundwork to enhance the blockchain’s utility, but it still needs to deliver on execution. Furthermore, the introduction of RLUSD as a bridge currency will crowd out XRP’s role in liquidity provision. Finally, some existing XRP holders remain in loss positions, and their selling pressure will need to be absorbed by buying power before the price can achieve substantial gains.
XRP’s long-term potential remains relatively high. As for whether it can surpass Ethereum to become the second-largest cryptocurrency, much of that is beyond investors’ control. However, at its current price, XRP still seems worth holding.
