XRP (XRP -1.42%) just experienced a catalyst that is likely to give it a new and enduring tailwind. Unlike tech upgrades or adding new users , the coin now has its foot in the door of a key location in the cryptocurrency industry. And none of its competitors have the same advantage.
Here’s what’s going on and why it’s so positive for the coin’s holders.
This legal status change is more important than it seems
On March 13, Ripple, the business that issues XRP, received approval from the Dubai Financial Services Authority to start offering to process payments using cryptocurrencies, especially stablecoins, in the U.A.E.
It’s the only company with that permission so far. It has already received approvals from a couple of other global financial hubs, such as New York and Singapore. While most of the payments that might be processed in the country will probably be via stablecoins rather than XRP itself. Because Ripple offers its own stablecoins on XRP’s network, it will have a significant knock-on effect of attracting capital to the chain. And that’s just the start of why this development is so bullish.
The U.A.E. is a market with $400 billion in international trade each year. That’s a vast pool of payments that could potentially be processed using XRP as a way to avoid currency exchange fees and money transfer fees. Now, the coin has a huge sales funnel there; if financial institutions are already processing payments using its blockchain, processing their other transfers will be a no-brainer. And that will increase demand for the coin.
Beyond that, Dubai is perhaps the global city that has tied itself most closely to the cryptocurrency industry. Major companies based there have made investments in cryptocurrency exchanges and forged partnerships with a plethora of different crypto businesses and projects across a variety of chains. Having regulatory clarity about being able to compete there is a very big deal, creating the opportunity to realize all sorts of possibilities down the line.
If Dubai’s rise to prominence in crypto continues, and so far it looks like it will, the benefits of having a clear legal status there will only increase with time.
The biggest benefits will be over the long term
As you may have noticed, XRP’s price barely budged in response to the announcement about the chain’s legality for processing payments in the U.A.E. Don’t interpret that lack of response in the wrong way: XRP’s world of accessible capital and its pool of potential users just got a lot bigger, even if the market isn’t recognizing it right now. A big part of the tepid response is that the crypto sector as a whole is trending downward due to macroeconomic concerns and general market instability. Another reason for the lack of reaction is likely that any new demand for XRP as a result of the U.A.E.’s move won’t materialize overnight.
After all, if Ripple just got the permission to offer payment processing services this week, it will be quite a while before volume will be worth writing home about. That could take a couple of years or perhaps more, depending on how hard Ripple markets XRP in the country. Then, it might take even more time for the businesses opting to use Ripple’s stablecoins for domestic payments to see that they would benefit from using XRP for their other transfers.
Still, it’s worth understanding that when those users park their stablecoins on XRP’s blockchain the total value stored on the network will, by definition, increase, which could theoretically make XRP’s price rise, as it’s the primary coin. Once again, this effect will take time to unfold, and it will not lead to the coin going to the moon.
In other words, you probably shouldn’t look to buy XRP on the basis of this news alone, as favorable as it is. There are still plenty of other reasons why it’s worth buying, of course.
Alex Carchidi has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends XRP. The Motley Fool has a disclosure policy.
