Though artificial intelligence (AI) has been the hottest trend on Wall Street for the better part of the last three years, it’s not the only trend that’s turning heads and raising eyebrows. The emergence of cryptocurrency treasury strategies has put some serious pep in the steps of the world’s leading digital assets.
Over the trailing-three-year period, as of this writing in the early evening on July 28, XRP (XRP 0.44%), the third-largest digital currency by market value, had risen just shy of 800%. Meanwhile, respective No.’s 1 and 2 in market value, Bitcoin (BTC 0.47%) and Ethereum (ETH 1.32%), have galloped higher by 421% and 136%.
Numerous factors have played a role in the outperformance of this crypto trio, including the election of Donald Trump, whose administration has taken a favorable view of the digital asset landscape, as well as positive sentiment in the investment arena. With two of Wall Street’s three major stock indexes blasting to new highs, investor confidence is soaring in the emotion-driven digital currency space.
But there’s no mistaking the demand-side boost Bitcoin and Ethereum have enjoyed from the adoption of corporate treasury strategies involving these tokens. The question is: Will Ripple’s XRP be the next target for corporate America?
Instead of carrying cash or other marketable securities on their balance sheets, some businesses are choosing to use their cash, or issuing stock and/or some form of debt, to purchase digital assets.
The concept of the Bitcoin treasury strategy kicked off with Strategy (MSTR 0.11%)(formerly known as MicroStrategy), which began purchasing Bitcoin to hold on its balance sheet in August 2020. Strategy CEO Michael Saylor has been adamant for years that Bitcoin is a superior form of money, especially when compared to the U.S. dollar, which devalues over time as the U.S. money supply increases.
Strategy, which anointed itself the first “Bitcoin Treasury Company,” has spent about $43.6 billion to acquire 607,770 Bitcoin. Since only 21 million Bitcoin are set to be mined, Strategy owns close to 2.9% of the lifetime supply. The perception of a fixed peak circulating supply is why Bitcoin is typically viewed as a phenomenal inflationary hedge.
A number of companies have followed in Strategy’s footsteps by adding Bitcoin to their balance sheets, many of which are micro- and small-cap businesses that are attempting to drum up hype for their respective companies.
Recently, a handful of public companies began shifting their attention to Ethereum. Whereas Bitcoin’s top-selling point is its perceived scarcity, Ethereum’s is its functionality. Ethereum’s blockchain is the backbone for decentralized applications, smart contracts, and decentralized finance that removes the middleman from the equation.
Two notable public companies have dived head-first into the Ethereum treasury strategy: Bitmine Immersion Technologies (BMNR 7.75%) and SharpLink Gaming (SBET 2.78%). Bitmine, whose board is chaired by Fundstrat’s Tom Lee, holds 566,776 Ether (ETH), with a goal of gobbling up 5% of the circulating supply. Meanwhile, SharpLink holds 360,807 ETH, worth about $1.36 billion at the time of this writing.
Considering XRP’s ninefold ascent over the last three years, as well as its numerous near-term catalysts, it would appear there’s certainly momentum, on paper, for public companies to add XRP tokens to their balance sheet. But if investors dig below the surface-scratching headlines, they’ll discover it’s unlikely that XRP will be a sought-after digital asset for corporate America.
There’s no question that XRP has enjoyed a stellar run-up. President Trump’s November victory cleared the way for the eventual resignation of now-former U.S. Securities and Exchange Commission (SEC) Chair Gary Gensler, who was a constant thorn in the side of digital currencies. Gensler’s exit led to the resolution of litigation clouds that had hung over Ripple, whose payment network leans on XRP as its bridge currency for cross-border transactions.
Additionally, there’s plenty of excitement surrounding the possibility of the SEC approving a spot XRP exchange-traded fund (ETF). A spot XRP ETF would likely follow in the footsteps of Bitcoin and Ethereum and see sizable cash inflows in the weeks and months following approval.
XRP investors also remain optimistic about the ongoing adoption of XRP as a cross-border payment intermediary. North of 300 financial institutions are utilizing RippleNet to facilitate transactions that can validate and settle in three to five seconds. If adoption continues, Ripple’s payment network could lead to a demand surge in XRP tokens.
But herein lies the rub.
While XRP has been firing on all cylinders in recent months due to a confluence of positive factors, it lacks the perceived stand-alone value brough to the table by Bitcoin and Ethereum. Whereas Bitcoin has its limited supply as a catalyst, and Ethereum stands tall as the premier smart contracts blockchain, XRP is simply a bridge currency for Ripple’s payment network.
What’s more, XRP isn’t the only bridge available to financial institutions using Ripple’s cross-border payment solutions. In select overseas markets, financial institutions aren’t using XRP at all to complete transactions.
Furthermore, the adoption rate for Ripple’s payment platform and XRP remains relatively tame. Though having more than 300 financial institutions using RippleNet globally sounds great on paper, it’s a far cry from the 11,000-plus financial institutions relying on the Society for Worldwide Interbank Financial Telecommunication, or SWIFT, which has been the standard for cross-border payments spanning decades.
Although one publicly traded micro-cap company with a market cap of less than $2 million recently unveiled an up-to-$20 million XRP treasury reserve strategy, investors shouldn’t expect XRP to be actively held for any sustained period by nonfinancial (or financial-based) public companies.
