As we approach the end of the first quarter of the year, the crypto market has proven to be a wonderful place to put capital to work so far in 2024. But the top dogs have enjoyed most of the spoils. Only about a handful of coins in the top 20 by market capitalization have kept up with Bitcoin (BTC-USD) and Ethereum (ETH-USD) from a year to date return standpoint:

Smart contract chains have generally lagged the returns from ETH. And even going further down the market cap list for some of the older “speedy” L1s like Stellar (XLM-USD) and Algorand (ALGO-USD) show underperformance against the top networks. One notable laggard from the top 10 has been Ripple (XRP-USD). You may recall Ripple’s positive court outcome last summer with a judge ruling that XRP tokens purchased on secondary markets were not unregistered securities. XRP experienced a swift rally from about $0.47 up to nearly a dollar in the days following that ruling. That rally was very short lived.

In this article, we’ll look at on-chain metrics for Ripple, the broader trend in development, and assess if investment capital in this laggard is something other investors appear to be entertaining.

Network Data

When I start digging into any digital asset as an investment idea, the first thing I typically do is go to the network data and assess the long term usage story. Daily active users is a great starting point and we can smooth that figure out to a 30 day moving average to get a better sense of trend. In the chart below, I’m showing exactly that for Ripple, Ethereum, Algorand, and Stellar.

I’ve chosen these comps for a couple reasons. First, anything in the smart contract realm is going to inevitably be compared to Ethereum, so it’s important to include it for context. Here, we see an active user base that is 14x larger than that of Ripple. At a 30 day active address figure just under 40k, Ripple is actually used less than both Stellar and Algorand despite having a fully diluted market cap that is several multiples higher.

Chain	30 Day Actives	Fully Diluted Cap
Ripple	39.7k	$68.1b
Stellar	160.9k	$7.4b
Algorand	50.5k	$3.3b

Sources: CoinMetrics, CoinMarketCap, as of 3/13/24

Where Ripple does have an interesting trend is in the 30 day average for transactions:

Though it has typically underperformed in this area against Stellar, a recent surge in transactions has propelled Ripple’s 30 day average daily transaction figure up near 5 million in late January and early February. It should be noted that the average is coming back down as activity has normalized in recent weeks.

Considering Ripple is optimized for scale, one would expect to see a far larger level of daily transactions than a network like Ethereum, which is significantly more expensive to use. But throughout much of 2022 and 2023, Ethereum’s daily transaction average is very close to Ripple’s. Putting a bow on this section; despite being cheaper and faster, Ripple is still not being used by nearly as many people as competing chains.

Development Activity

By itself, low usage isn’t always a problem. For instance, if there was a high level of development happening on chain, this would potentially foreshadow an increase in usage. We’re just simply not seeing that according to data from Sentiment:

Judging by both active developers and development activity count Ripple development peaked in 2015. On average, there are now about 8 contributors developing on this network during a 30 day period. Unlike some of the other popular chains in the industry, Ripple is really positioned more as an enterprise solution rather than as a consumer-based solution.

Given both the lack of development and network usage, I don’t see a strong fundamental reason to long XRP at this point. Frankly, CBDCs are not something that people seem excited about in the jurisdictions where they’ve been tried. And cross-border payments is a highly competitive space that includes just about every public blockchain network and private enterprise solutions like Wise plc (OTCPK:WPLCF) and Revolut. Scale is the largest selling point for Ripple and we’re just not seeing it resonate with the market.

Investment Demand

From an investment standpoint, Ripple was already well behind the billions that were piled into Bitcoin and Ethereum headed into 2024. CoinShares data has the next largest single-asset coin investment product after Ethereum as Solana.

Assets	AUM End of 2023	YTD Flow	Change
Solana	$839m	$10m	1.2%
Binance (BNB-USD)	$317m	$1m	0.3%
Litecoin (LTC-USD)	$121m	$4m	3.3%
Ripple	$77m	$9m	11.7%
Cardano (ADA-USD)	$69m	$7m	10.1%
Polkadot (DOT-USD)	$36m	$5m	13.9%
“Other”	$200m	$45m	22.5%

Source: CoinShares data, as of 3/8/24

The data in this table is interesting. Rather than compare the total AUM from the end of 2023 with the year to date AUM and calculate the change, I’m looking instead at the YTD flow data against last year’s ending AUM figure to get a better sense of the real flow adjusting for the increases in the values of the assets. This is so coin price returns don’t skew our perception of incremental investment flow.

At $9 million in year to date net flow, Ripple is actually ahead of chains like Cardano and Polkadot. However, the “other” category is interesting because it shows more investment both in aggregate dollars and in growth pace. The way I’m interpreting this is investment capital is more likely to go further down the market cap ranking list for the more speculative ideas after BTC and ETH. That certainly doesn’t mean things like Cardano or Ripple don’t still have the attention of investors, but they’re arguably more contrarian plays at this point.

Summary

There’s nothing fundamentally wrong with taking positions in contrarian ideas. I’m certainly no stranger to this as Litecoin (LTC-USD) is one of my largest crypto holdings. But as I see it, the difference in longing something like LTC as a contrarian play while avoiding something like XRP is that Ripple’s usage isn’t all that high while Litecoin’s is.

Furthermore, the smart contract landscape is incredibly competitive and it’s difficult to imagine a network like Ripple being the one institutions ultimately chose when the overwhelming majority of the usage is happening on Ethereum and secondary chains that exist solely to scale Ethereum. If there were positive signs in Ripple’s development activity, I think you could argue XRP is worth a flier bet, but that hasn’t been the case.

Something that I’ve seen happen in past cycles is laggards briefly flipping to leaders when broader moves start getting exhausted. From that vantage, XRP might actually offer a compelling trade opportunity. But with a $68 billion fully dilute cap as a starting point, I can’t help but wonder how much speculative “pop” this coin really has left in it. For me, ALGO is a much better expression of that idea at a fraction of the valuation and with a very similar average active user figure. I’m rating XRP a hold as I have very little interest in the network or the trade.

Editor’s Note: This article covers one or more microcap stocks. Please be aware of the risks associated with these stocks.