Bitcoin saw a sharp decline in price during much of the past week. The cryptocurrency fell nearly 10% from Jan. 7 through Jan. 14. Bitcoin’s slide was mirrored by altcoins across crypto with Ethereum, Solanaand Dogecoin all losing as much or more than the oldest, most valuable coin.
The decline was, in part, driven by a hotter-than-expected jobs report released Friday. This means the Federal Reserve could delay or reduce further interest rate cuts. Digital assets tend to be seen as “risk-on” by investors — that is, investments that add risk to a portfolio. Generally, when rates are falling, investors are more willing to take on risk while the opposite is true when rates rise. Given that fewer cuts are now expected, risk-on investments like crypto were hit.
But despite the movement of the rest of the market, XRP (XRP 8.12%) managed to gain 3.7% since Jan. 7. Let’s take a look at why and then consider whether XRP could be a millionaire maker.
A key deadline looms
In 2020, XRP’s parent company, Ripple, was sued by the Securities and Exchange Commission (SEC). The regulator claimed that the company sold XRP as an unregistered security, a pretty big no-no. In August 2024, a court ruled mostly in Ripple’s favor, approving a $125 million fine when the SEC was originally seeking $2 billion.
How is this relevant now, though? The SEC appealed the ruling in October but still must present its evidence if an appeal is to move forward. The deadline to do so is today. Under normal circumstances, there would be little reason to believe the SEC wouldn’t meet this deadline. However, the regulator is undergoing a key change in leadership brought on by the election of Donald Trump.
The current chair, Gary Gensler, is stepping down. Gensler has not exactly been a friend to XRP and crypto at large, but Trump’s pick for his replacement, Pail Atkins, will likely take a different tack. Investors appear to believe the SEC will not pursue its appeal further in anticipation of this change in leadership and broader philosophy.
XRP has a valuation problem
Although the failure of the SEC to continue its appeal by the end of today certainly could lead to a short-term gain, I’m dubious of XRP’s long-term value. That’s because the value the market is currently assigning to the token seems out of sync with what it can realistically provide in the real world.
XRP is designed to transform banking by drastically reducing the cost and increasing the speed of transactions between financial institutions. In 2023, legacy systems cost the industry $193 billion in fees. This is the figure that proponents cite to illustrate just how large the opportunity is for XRP. And while the number is impressive, it’s entirely misleading.
XRP transactions are by their nature extremely cheap. They’re orders of magnitude cheaper than the legacy transactions they hope to replace. If this is true, even if XRP captured 100% of the market, the fees collected would be several orders of magnitude smaller than the current $193 billion paid out to legacy systems. In this light, the current $150 billion market capitalization of XRP seems divorced from reality.
The question at hand
Ok, let’s assume I’m wrong, however. Let’s assume XRP is able to continue to grow considerably. Can it reach millionaire-maker status? For our purposes let’s say it would need to turn a $10,000 investment into $1 million in 30 years. However, $1 million in 30 years is only worth about $300,000 today. A true millionaire maker by today’s standards would need to turn our $10,000 into $3.3 million — a tall order.
That’s a 33,000% return over 30, years which works out to an annual rate of 21.3%, more than twice that of the stock market’s historical average. If XRP grew at this pace, by 2065 it would have a market cap of $48 trillion, the same as the top 10 largest banks combined (assuming a generous 10% annual growth rate). Do you believe XRP could be worth the combined market caps of the 10 largest banks in the world?
Given this, I wouldn’t call XRP a millionaire maker. Not just this, but considering its current valuation, I wouldn’t recommend it as an investment at all — not at this price. If you are interested in crypto investing, Bitcoin is a wiser choice.
