Although it’s important to avoid getting caught up in focusing on short-term changes in key cryptocurrency metrics, sometimes there’s reason to believe in the emergence of larger trends that have big financial implications for your assets. And during the past 30 days and before, that’s exactly what’s happening for one metric that’s particularly important to the future of both Ethereum (CRYPTO: ETH) and XRP (CRYPTO: XRP), as different as the two chains are in terms of their stated goals and technical implementations.
Let’s explore the metric that’s changing in their favor and understand why it matters for the long-term viability of both.
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More assets on the chain means more value for holders
Pinning cryptocurrencies to specific valuations is a difficult process that’s a mixture of guesswork and a smattering of different financial fundamentals, all of which end up being interpreted in light of the prevailing market sentiment.
One valuation factor that’s pretty concrete in terms of its price impact is the value of assets that are tracked and traded on a chain; industry insiders refer to these assets as being tokenized because from a technical standpoint, they’re imprinted on a crypto token. The idea here is that if a real-world asset like a car or a contract for a fixed quantity of commodities is tokenized and its ownership tracked via blockchain, the chain where the asset “lives” is thus in some sense a manager of that asset’s value. Because the value of those kinds of real-world assets are primarily denominated in fiat currencies rather than cryptocurrencies, they represent the ability for a holding on a chain to be liquidated in exchange for stablecoins, which are themselves exchangeable for fiat.
So, changes in the total value of tokenized real-world assets held across all blockchains is a strong proxy for how much value is flowing in to be stored on the chain. The more the value of those assets increase, the more the value of the chains where the assets are held can be expected to increase over time as well. And during the past 30 days, the total value of real-world assets held on the chain increased by nearly 10%, reaching more than $22 billion.
Image source: Getty Images.
That’s a remarkably fast growth rate during such a short period, considering that most investors haven’t even heard of the idea of parking their hard assets on a blockchain to make them easier to track, hold, and trade. Fewer still would look to the inflows as being a predictive factor for the price of their coins. But it’s actually consistent with an emerging trend led by major asset managers in the traditional financial sector, who stand to gain from using blockchain technology to manage their holdings instead of a patchwork of different legacy systems.
More importantly for holders of Ethereum and XRP, both chains stand to gain a significant portion of the incoming asset value, which is likely to boost the value of their native tokens in the process. Ethereum currently holds a 57% share of the total real-world asset value that’s tokenized, and XRP, while holding just 1%, is likely to be a big winner of the segment’s growth thanks to its institution-friendly features and marketing efforts.
This trend is just getting started
The tokenized real-world asset sector could grow to be anywhere between $2 trillion and $30 trillion during the next five years or so, depending on whose estimate you use. Therefore, even under the most conservative estimates, dramatically fast growth is coming, and in fact, it’s probably already here, considering that at the start of 2023, there were just $5.2 billion in real-world assets tokenized on the chain (versus more than $22 billion now).
That’s extremely bullish for both Ethereum and XRP. Whereas Ethereum is likely to attract capital inflows as a result of having a decentralized finance ecosystem that’s rich with different tools, products, and services for tokenization and asset management, XRP is more likely to win in the long term as a result of its emphasis on top-down regulatory compliance and its marketing of ancillary services like lending and borrowing to its users. And even beyond these two leaders, there will very likely be other chains that grab a significant slice of the pie as well.
The takeaway? The investment thesis for buying XRP and Ethereum is getting stronger, and the trend driving the change is still picking up speed.
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Alex Carchidi has positions in Ethereum. The Motley Fool has positions in and recommends Ethereum and XRP. The Motley Fool has a disclosure policy.
