XRP (XRP 4.93%) is exposed to quite a few potential catalysts this year, and there’s a good chance that at least nine of those catalysts will occur nearly simultaneously. The odds are also good that if one of the catalysts plays out in its favor, the others will follow.
But does that (possible) row of dominoes actually make the token worth buying for an investor who wasn’t already convinced of its potential?
What could happen
As of March 12, nine asset management companies had submitted materials to the Securities and Exchange Commission (SEC) seeking to get approval to offer an exchange-traded fund (ETF) that holds XRP. The latest business to file for permission, Franklin Templeton, did so on March 11. More companies may submit filings later this year.
Each of the applications represents an opportunity for XRP’s price to rise. XRP-holding ETFs, should they ever get approved, would bring significantly more trading volume to the chain. The ETF issuers would need to be buying and selling more of the token on a daily basis to ensure that their fund contains the claimed assets. And more trading volume would mean more liquidity for those who wish to efficiently transact with large sums of money.
Therefore, if the ETFs are approved, it would make XRP’s chain more appealing for big banks and other financial institutions to hold their assets and perform international money transfers, as they’d have good odds of being able to transact with the size they want without needing to worry as much about moving the price of the underlying asset or otherwise disrupting the function of the market.
That’s important, as the token is already designed to appeal to those players, and they’re the most important users for it to onboard. Furthermore, if the SEC says that it’s acceptable to issue XRP ETFs, it would be a significant mark of legitimacy that, as a cryptocurrency, it can always use.
So it’s reasonable to say that ETFs getting approved would support the investment thesis for buying XRP, which is namely that it’s the token of choice for financial institutions that need to transact internationally a lot of the time. And it would likely lead to additional adoption of using the token from at least a few of those institutions.
But is the possibility of the ETFs a strong enough reason to buy the token right now?
Don’t expect this token to go to the moon
XRP-holding ETFs would be a bullish catalyst. Nonetheless, approval of these ETFs would not do much to make the token dramatically more appealing to investors who are hesitant to invest in cryptocurrencies, nor is it reasonable to expect that ETFs would send XRP’s price soaring to the moon immediately if they do end up getting approved.
It’s probable that as XRP becomes more deeply integrated into the traditional financial system (a process that ETFs would advance) it won’t perform with as much volatility as it currently does. That would make the token a more comfortable hold for investors. It’s also true that the ETFs would need to be initially launched with some purchasing activity from the asset managers, which could lead to some significant upward price pressure in the near term, and even over the long term if the assets prove to be popular with investors in traditional finance.
Yet as shown by other cryptocurrencies like Bitcoin and Ethereum that are already held by approved ETFs, ETFs don’t change the the fact that these assets can be very volatile. And, at least for those two, there’s no clear relationship between the dates when the ETFs started to get approved, and their prices rising.
So for a conservative investor who is a bit skeptical about XRP or even cryptocurrencies in general, there isn’t really anything that’s very convincing in the cards here, aside from the stamp of legitimacy that the SEC would be providing, which probably won’t be enough to make the decision to buy a priority.
On the other hand, for investors who are already invested in XRP, the ETFs could provide a nice boost, so it might be worth buying a few more tokens to prepare.
Alex Carchidi has positions in Bitcoin and Ethereum. The Motley Fool has positions in and recommends Bitcoin, Ethereum, and XRP. The Motley Fool has a disclosure policy.
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