Is XRP an Attractive Investment Option? ETF Approval and Market Status

Ripple’s XRP token has garnered significant attention in recent months. As of December 2024, XRP’s price is trading at $1.84, with a market capitalization of $111.58 billion. But the real question is: does XRP hold long-term investment value? Especially with the anticipated ETF approval, is this asset a suitable option for investors? To answer these questions, it is essential to first take an in-depth look at what XRP ETFs are, where they currently stand, and what they could mean for investors.

Current Status and Key Developments in the XRP Market

Over the past six months, dramatic changes have occurred in the XRP market. XRP’s price movements are closely linked to Ripple’s legal battles and positive news developments.

Price and Market Metrics:

• Current price: $1.84
• Market capitalization: $111.58 billion
• Price increase since July 2023: over 310%
• All-time high: $3.65
• Circulating supply: 60.5 billion XRP

These figures indicate that XRP ranks third in the crypto market and is beginning to attract significant institutional interest. But how much will these market dynamics change with an ETF approval?

XRP ETF Applications: Current Status and Timeline

By the end of 2024, multiple institutions have filed applications for an XRP Exchange-Traded Fund (ETF). These applications reflect institutional investors’ confidence in XRP.

Major Applications:

WisdomTree officially submitted an application to the SEC for an XRP ETF in Delaware on November 25, 2024. Managing over $113 billion in assets, it is one of the largest players in this space. Their application includes a cash creation and share redemption model.

Bitwise made the first sector application in October 2024, partnering with Coinbase Custody to provide direct access to XRP.

21Shares already offers an XRP ETP product called AXRP in the European market and has made an official application for the US market by the end of 2024. The European product is 100% physically backed by XRP.

Canary Capital has prepared ETF applications for several crypto assets, including XRP.

When Will the Approval Process Be Completed?

It could be a pivotal milestone by June 2025. The departure of SEC Chair Gary Gensler and a more favorable stance toward the crypto market by the new administration could accelerate approval. However, the outcome of the Ripple vs. SEC appeal will play a critical role.

Structure and Operation of XRP ETFs

An XRP ETF is fundamentally a regulated way to gain exposure to XRP. It can be bought and sold through traditional brokerage accounts, eliminating the need to navigate crypto exchanges.

Core Mechanism:

Financial institutions purchase XRP assets and issue shares representing these holdings. Each share corresponds to a specific proportion of the total XRP held by the fund. Investors can buy and sell these shares during market hours, just like stocks.

The Net Asset Value (NAV) of the ETF is calculated by dividing the total value of XRP in the fund by the number of shares outstanding. Management fees typically range from 0.5% to 1.5% annually.

Advantages of XRP ETF as an Investment Product

Compared to directly purchasing XRP, an XRP ETF offers several advantages:

Accessibility and Convenience: Being traded on traditional exchanges removes the need to open accounts on crypto exchanges. No management of digital wallets or private keys is required. This is especially beneficial for investors new to crypto.

Regulatory Security: SEC-regulated ETFs provide a more secure structure compared to unregulated crypto exchanges. The risks of fraud and hacking are significantly reduced.

Liquidity and Trading Flexibility: Trading on major exchanges ensures high liquidity and tight bid-ask spreads. Investors can easily exit positions during market hours.

Simplified Tax Reporting: ETFs offer consolidated tax documents, making it easier to manage multiple crypto transactions.

Professional Management: Financial professionals handle asset selection and management, potentially delivering more effective results than individual investors.

Important Risks: What You Need to Know Before Investing

While XRP ETFs look promising, they carry serious risks:

Market Volatility: XRP has experienced significant price swings historically. Regulatory news, market sentiment, and macroeconomic factors can dramatically impact prices. For example, after Ripple’s favorable outcome in the SEC case in 2023, XRP surged over 70%, followed by sharp corrections.

Regulatory Uncertainty: The SEC’s appeal process in the Ripple case is ongoing. Negative rulings could classify XRP as a security, delaying ETF approvals. New regulations could impose additional compliance costs.

Tracking Errors: ETFs may not perfectly track XRP prices. Management fees, operational costs, and use of derivatives can cause discrepancies between ETF performance and the actual XRP price. An annual fee of 1% can significantly erode returns over time.

Liquidity Risks: If XRP’s trading volume declines, ETF share creation or redemption could become difficult. This may lead to wider bid-ask spreads or discounts to NAV.

High Initial Fees: New crypto ETFs may start with higher management fees. Competition could reduce these over time, but early investors might face higher costs.

Comparison with Bitcoin and Ethereum ETFs

XRP ETFs differ from more established crypto ETFs in certain aspects:

Regulatory Approval Process: Bitcoin spot ETFs were approved in January 2024, attracting over $100 billion in inflows. Ethereum ETFs followed in May 2024, reaching around $10 billion. XRP ETFs are still awaiting approval due to ongoing legal challenges.

Market Dominance: Bitcoin and Ethereum dominate the crypto ETF market. XRP, while rising, has yet to attract the same level of institutional investment.

Hedging Instruments: Bitcoin and Ethereum have CME futures markets, providing price discovery and hedging options. XRP currently lacks such instruments, complicating ETF approval.

Fee Structures: Bitcoin and Ethereum ETFs offer competitive fees. XRP ETFs may start with higher fees but are expected to align with industry standards over time.

Potential Market Impact of XRP ETF Approval

Approval of an XRP ETF could significantly influence XRP’s price through various mechanisms:

Institutional Entry: SEC approval would attract institutional investors seeking regulated XRP exposure. The success of Bitcoin ETFs demonstrates this potential.

Legitimacy: SEC approval could enhance XRP’s credibility in the market, attracting a broader investor base.

Speculative Dynamics: Expectations of ETF approval have already driven XRP’s price up by over 310 in recent months. Final approval could trigger further speculation or disappointment.

Long-Term Price Outlook: Some analysts predict XRP could reach levels between $6 and $20 or even higher following ETF approval. However, these forecasts are speculative and should be approached with caution.

Market Trends: How Are Crypto ETFs Growing?

The crypto ETF market is experiencing rapid growth:

Adoption Rates: By December 2024, approximately 40% of American adults own cryptocurrencies (compared to 30% in 2023).

Institutional Participation: 47% of hedge funds are exposed to digital assets (up from 29% in 2023). This increase is a direct result of regulatory clarity and the launch of spot crypto ETFs.

Initial Success: The iShares Bitcoin Trust ETF attracted over $50 billion in the first month of 2024, showcasing the market’s potential.

Ripple’s Growing Ecosystem: Infrastructure Built Around XRP

Part of XRP’s investment appeal lies in Ripple’s underlying technology and partnerships:

Cross-Border Payment Network: Ripple’s technology is used by over 300 financial institutions. RippleNet enables faster, cheaper international payments.

RLUSD Stablecoin Launch: Ripple is preparing to launch RLUSD, a USD-backed stablecoin. This will create stable trading pairs for XRP and significantly boost liquidity.

Institutional Partnerships: Ripple continues to establish strategic partnerships with major financial institutions, expanding XRP’s use cases.

Is “XRP a Good Investment?” The Answer

Ultimately, investing in XRP depends on the investor profile:

XRP ETF Might Be Suitable If:

• You want exposure to the crypto market but prefer to avoid direct crypto purchases
• You favor a regulated structure
• You have moderate to high risk tolerance
• You have a long-term investment horizon

XRP ETF Might Not Be Suitable If:

• You are a conservative investor
• You seek short-term gains
• You find crypto market volatility intimidating
• You believe the Ripple case will have a negative outcome

In conclusion, XRP ETFs, like Bitcoin and Ethereum ETFs, will provide a mainstream pathway into the crypto market. However, investment decisions should be made consciously, considering the specific risks and regulatory uncertainties involved.

Additional Resources and Related Topics

• RLUSD Stablecoin: A Guide to Ripple’s New Financial Product
• Spot Bitcoin ETFs: Selection and Purchase Guide
• Ethereum ETFs: Comparison and Evaluation
• Risk Management Strategies in Cryptocurrency Investment