3 Reasons XRP Enthusiasts Should Still Be Cautious

Key Points

• XRP has a lot of competitors, and they're not slouches.

• Its stablecoin base is an area where it's particularly lagging.

• New challengers are emerging rapidly, and they're targeting some of the coin's core segments.

• 10 stocks we like better than XRP ›

When an asset's story is consistently improving, it's easy to get so bullish about it that you end up making serious mistakes with your portfolio as a whole. To fight that outcome, it's helpful (if somewhat depressing) to make a habit of noticing whenever you're feeling especially exuberant about an asset you hold, and to step back and go through the mental effort of deconstructing everything that could go wrong with it. Think of it as a controlled burn of your own enthusiasm to ward off the potential for a much more materially destructive wildfire wave.

For many of those who hold XRP (CRYPTO: XRP) right now, it's time to employ that little trick. There are three issues in particular that argue for at least some caution and for keeping your position sizing sober.

Where to invest $1,000 right now? Our analyst team just revealed what they believe are the 10 best stocks to buy right now. Learn More »

Image source: Getty Images.

1. The most valuable customers have plenty of alternatives

For the banks, asset managers, payment companies, and other financial institutions that XRP wants to serve with its ledger, the XRPL, the competition is vigorous, well-capitalized, and guaranteed to be consistently contesting its market share of capital.

Ethereum is especially concerning, as it's the default home of asset tokenization, decentralized finance (DeFi), and stablecoin management. Traditional financial institutions like BlackRock are comfortable building there, in part due to the decent staking yields that the chain offers. It's getting even more comfortable for that sector as time passes, with asset issuers launching tokenized U.S. Treasury bills and credit products. Both of these are essential tools for financial institutions, thereby cementing Ethereum's institutional gravity even further.

Emerging payments-and-stablecoins chains like Circle Internet Group's Arc, Stripe's Tempo, and Alphabet's newly announced chain may pose a serious threat to XRP over the long term (if not right now, as none of those three have fully launched yet). Existing stablecoin chains, like TRON, are likely contesting the XRP Ledger's stablecoin status as well.

Therefore, the total addressable market (TAM) for XRP is as real and as large as ever. But so is the head-to-head pressure from other chains with entrenched integrations and liquidity, as well as new contenders arriving on the scene. If the next wave of large institutions keeps defaulting to Ethereum, XRP's share of new flows could lag even as the sector grows.

2. XRPL's stablecoin base is still small

The effect of competition in the stablecoin market is already sufficient to make XRP a bit player. There are only about $90 million in stablecoins parked on the XRPL.

That matters because stablecoins are the fiat currency cash equivalents of crypto. Deep, native stablecoin liquidity makes a chain easier for corporate treasurers, financial market makers, and app developers to use every day. On the leading chains, depth is not the problem. Ethereum hosts roughly $159 billion in stablecoins, which gives it a big edge in attracting new capital from institutional investors.

In comparison, XRPL's stablecoin footprint is early. The all-important stablecoin asset USDC only launched natively on XRPL on June 12, so building up balances will take time. While Ripple's own stablecoin, RLUSD, has grown quickly, with a circulating supply near $700 million, it's still much less than Ethereum's stablecoin base.

In other words, even if XRP's design is attractive for asset managers and asset issuers alike, day-to-day liquidity for large flows is thinner than on chains where stablecoins already function. Liquidity begets more liquidity, so closing that gap is a key medium-term execution risk for the coin's investment thesis.

3. Don't let enthusiasm turn into over-allocation

The final reason to be cautious about XRP is that being reckless with it could compromise your portfolio's diversification, and leave you vulnerable to experiencing significant downturns if the coin doesn't behave as you desire. Over the long term, there will definitely be at least one such period like that, in case it wasn't obvious.

So, how much of an allocation to XRP is sensible? There is no single right answer, but many mainstream frameworks call for small allocations with rebalancing.

If you limit your allocation to 1% to 2% of your portfolio's total value, the overall risk for your portfolio will be modest, while still getting you exposure to your position quietly growing into something meaningful. To put it even more clearly, there's no need to bet the farm here, and doing so is not advisable.

Still, if you are bullish on XRP's trajectory, a larger allocation might be warranted. But the case for maintaining caution is more compelling. Overallocation and irrational exuberance, not investment thesis mistakes, are what usually hurt long-term results. Keep XRP inside a diversified portfolio, and you will benefit plenty if the market breaks your way.

Should you invest $1,000 in XRP right now?

Before you buy stock in XRP, consider this:

The Motley Fool Stock Advisor analyst team just identified what they believe are the 10 best stocks for investors to buy now… and XRP wasn’t one of them. The 10 stocks that made the cut could produce monster returns in the coming years.

Consider when Netflix made this list on December 17, 2004... if you invested $1,000 at the time of our recommendation, you’d have $640,916!* Or when Nvidia made this list on April 15, 2005... if you invested $1,000 at the time of our recommendation, you’d have $1,090,012!*

Now, it’s worth noting Stock Advisor’s total average return is 1,052% — a market-crushing outperformance compared to 188% for the S&P 500. Don’t miss out on the latest top 10 list, available when you join Stock Advisor.

See the 10 stocks »

*Stock Advisor returns as of September 8, 2025

Alex Carchidi has positions in Alphabet, Circle Internet Group, and Ethereum. The Motley Fool has positions in and recommends Alphabet, Ethereum, and XRP. The Motley Fool has a disclosure policy.