As a coin that’s inextricably linked to the volume of global money transfers, XRP (CRYPTO: XRP) is in a bit of a pickle at the moment. While it’s unclear whether the new package of tariffs announced on April 2 by the Trump administration will actually be put into practice, it is no surprise that the coin’s price fell by 8% on April 3.
But the risks facing XRP right now are even larger than what investors might be expecting. For the right investor, however, this might be a compelling time to think about buying, so let’s situate ourselves and chart a path forward.
For the uninitiated, XRP is a coin that helps financial institutions reduce their expenses when transferring money internationally. Its transactions close nearly instantly, and its fees are negligible compared to older transfer technologies like the Society for Worldwide Interbank Financial Telecommunication (SWIFT).
Also, because XRP is a cryptocurrency rather than a fiat currency, transfers between wallets on its blockchain do not incur currency exchange fees, which can be quite costly.
That makes the coin highly exposed to risks stemming from impacts to global trade. When trade across borders occurs, buyers in one country transmit their payment to the sellers in the originating country. If there is less trade happening on a value basis, there is a lower volume of money being transferred.
That equates to a somewhat lower impulse for the players involved to switch over to using XRP as the medium of exchange for the entire process, because on an absolute basis, the expenses involved are incurred less frequently due to less trade happening.
But the risks to the coin are even more numerous than the above implies.
Tariffs levied by one country on goods that are imported from another country are passed on to consumers in the buyer’s country. It is a basic lesson of economics that if prices rise while supply stays constant, the level of demand for a product drops.
Thus, if the Trump administration’s tariff policies are implemented as planned, domestic demand for imported goods will drop. And banks and other financial institutions in the U.S. that might already be using XRP to process international money transfers will not need to buy or hold as much of the coin to cover their needs.
As if that weren’t bearish enough, there is now a financial incentive for foreign sellers to avoid using U.S.-based blockchains like XRP — the prospect of their use being taxed somehow, especially as it pertains to making international payments for trade, is now undeniably on the table.
