Ripple: Asset Tokenization Presents Fresh Catalyst (Rating Upgrade)

Summary Bitcoin and major cryptocurrencies have experienced a bullish scenario due to the approval of spot Bitcoin ETFs. XRP has not benefited from the recent crypto market momentum and has only seen a ~1.8% price gain in the 6-month time frame. Ripple's focus on asset tokenization presents a potential catalyst for XRP, as Ripple has the potential to become a market leader in the RWA tokenization segment. The crypto market has seen decent price action since the start of the year. As always, Bitcoin's momentum typically leads the market. The buildup to the spot Bitcoin ETF approval, since Q3 last year, and the subsequent approval of the ETFs on January 10, have created a bullish scenario for Bitcoin and major cryptocurrencies. XRP, BTC, ETH, SOL 6-month price return (Seeking Alpha) In the 6-month time frame, Bitcoin ( BTC-USD ) has surged ~101%, Ethereum ( ETH-USD ) has seen ~91% gain, Solana ( SOL-USD ) is up by ~440%, while XRP ( XRP-USD ) has seen a mere 1.8% price gain. As seen in the price return chart above, XRP has not benefited from the recent crypto market momentum. XRP last saw a surge in July, following a court ruling in Ripple's favor in the firm's ongoing case with the SEC. I last covered XRP in that period and recommended a "hold" for the cryptocurrency. Are Ripple Fundamentals Still Strong? To know why XRP has not benefited from the recent crypto momentum, an analysis of the crypto asset's fundamentals is necessary. Crypto asset fundamental analysis entails the analyses of factors like the underlying tech, new viable use case, community support, market demand, and tokenomics. If the analysis shows that fundamentals are strong while price action has been weak, then market inefficiency and market mispricing could be the case and a buying opportunity could present itself. Ripple's Ledger Finds New Use Case In each crypto market cycle, a certain set of crypto narratives takes center stage. Crypto narratives are trending ideas that present how blockchain technology could solve a certain problem or disrupt a particular industry. These narratives present new use cases for blockchain technology and cryptocurrencies. In the early days of the crypto market, specifically during the 2013 to 2016 market cycle, the main narrative was simple. Crypto projects focused on marketing a more secure, faster peer-to-peer (p2p) payment system compared to Bitcoin. The main narratives in this era were the p2p and privacy narratives. Then in the 2017 market cycle, Ethereum made the concept of decentralized apps (dApps) and crypto tokens mainstream, and this resulted in an explosion of crypto narratives. In the current market cycle, trending narratives include the AI narrative (also called decentralized AI) and the asset tokenization narrative. Among several touted use cases, the AI crypto narrative aims to democratize access to AI development and models. I, however, remain a bit skeptical about the viability of the AI crypto narrative, as I perceive it as mainly an attempt to capitalize on the general hype surrounding AI in the traditional markets. Among the current trending crypto narratives, asset tokenization presents a viable use case for distributed ledger technologies. Asset tokenization is gaining traction in the current crypto market cycle. This article focuses on the asset tokenization narrative and Ripple's new focus on this trending narrative. What is Asset Tokenization? Asset tokenization, sometimes called real-world asset (RWA) tokenization, involves converting tangible assets, such as real estate or commodities, into digital tokens on a blockchain. This process allows for fractional ownership, increased liquidity, and easier transferability of traditionally illiquid assets. Tokenization is achieved by representing ownership through blockchain-based tokens. Asset tokenization provides transparency and security. RWA tokenization has the potential to democratize access to investments and streamline asset management processes. RWA Tokenization Market Opportunities Asset Tokenization Estimate (BCG, ADDX) Asset tokenization Research report by digital securities exchange platform ADDX and global consulting firm Boston Consulting Group (BCG) forecasts that RWA tokenization presents a burgeoning business opportunity, and the asset tokenization market is projected to grow by 5,000% between 2022 and 2030, becoming a $16.1 trillion market and an estimated 10% of global GDP by 2030. RWA tokenization is expected to disrupt almost every industry and reshape markets. Asset tokenization is seeing an upturn. From shares to vintage wines to real estate , there has been an RWA tokenization recently. Large institutions are increasingly showing interest in asset tokenization. In October, BlackRock tokenized its shares for an OTC derivatives trade with Barclays, using J.P. Morgan's Onyx blockchain platform for asset tokenization. I believe [that] the next generation for markets, the next generation for securities, will be tokenization of securities Larry Fink, BlackRock CEO Ripple is an RWA Tokenization Contender Ripple is one of the top blockchain firms that has shown a primary interest in RWA tokenization . Considering the market opportunities that RWA tokenization presents and the projected market value by the end of the decade, I believe Ripple's new focus on RWA tokenization gives it a fresh potential to see a surge in and active use of the XRP Ledger (XRPL) in processing high-volume transactions, giving XRP constant utility. Ripple's blockchain was developed from the get-go to be a fast, cheap (low transaction fees) platform for real-time, cross-border payments and various financial applications; this speed and low fees make the XRPL a potentially suitable distributed ledger for asset tokenization and a dominant force in the RWA tokenization segment. I'm not implying that Ripple will have an easy path to becoming the dominant or go-to platform for RWA tokenization; however, with the existing tech stack, partnerships, and MoUs, I believe Ripple stands the chance to become one of the market leaders. The combination of Ripple's DEX and On-Demand Liquidity (ODL) provides an all-around seamless ecosystem for the efficient issuance, trading, and transfer of tokenized assets. Rival blockchains like Avalanche ( AVAX-USD ) are taking RWA tokenization seriously. Last year, Avalanche Foundation launched a $50 million asset tokenization initiative dubbed Avalanche Vista. Last week, Citi ( C ) conducted a proof of concept test on tokenizing private equity funds on the Avalanche blockchain. Stellar Lumens ( XLM-USD ), the blockchain with the same origin as Ripple (both were co-founded by Jed McCaleb but have evolved separately) is also a strong contender in the RWA tokenization space. Last year, investment management giant Franklin Templeton collaborated with the Stellar Foundation to store records of its US government money fund ( FOBXX ) on the Stellar blockchain. Franklin Templeton has expanded the fund to the Polygon ( MATIC-USD ) blockchain and has since announced plans to issue the fund's tokens on Avalanche and Aptos ( APT-USD ) blockchains. The sheer amount of RWA tokenization-focused investments and the record asset tokenization activities - as seen in the cases of Avalanche and Stellar - shows that the RWA tokenization narrative is a strong contender in the imminent crypto bull market. Ripple is evolving. We're expanding from a cross-border payments network to a platform providing tokenized services that will bring crypto capabilities to the enterprise and prepare them for a future where crypto is front and center. Source: Ripple blog post Considering Ripple's early focus on financial institutions and the transformation of the global financial system, I believe that the blockchain firm's new focus on asset tokenization will provide one of the best and most seamless infrastructures and ecosystems to tokenize assets and manage tokenized assets. Existing financial institutions exploring the use of RippleNet form a solid initial client base for Ripple's impending RWA tokenization initiative. At the end of 2023, Ripple announced some bold predictions for 2024. The company predicts that "RWA tokenization will drive the blockchain economy, led by real estate and commodities." The company predicts and believes that XRPL will be a leading ledger enabling the RWA tokenization use case. Takeaway For several months, XRP has lacked a catalyst. The last XRP price surge came after Ripple notched an important win in its ongoing case with the SEC, which saw XRP gain ~75% in mid-July. The court ruling in favor of Ripple wasn't exactly a lasting catalyst and the upward price action following the announced win was short-lived. With Ripple's existing tech, the financial institutions on RippleNet that use Ripple's products and blockchain, and the announced and planned shift to RWA tokenization, a fresh catalyst is in sight for XRP. I believe Ripple's new focus on RWA tokenization is right in time and presents a lasting catalyst for XRP. Other aspects of XRP's fundamentals show that community support for XRP remains strong. The XRP community, fondly referred to as the "XRP Army" on the X app, continues to express support for Ripple, sometimes acting as constructive critics . Based on Ripple's existing tech, its new focus on asset tokenization, and the huge opportunities in the asset tokenization market, XRP merits inclusion in the portfolio of crypto investors with a mid to long-term investment view.