It’s not been long that I entered the cryptocurrency bandwagon. It was only when I started my research on the blockchain technology as part of my work, I got really interested in the world of cryptocurrency, and started digging deeper. All in all it’s been only a month and a half, and I did put in a couple of grands to start with once I had a fuller understanding of cryptocurrencies, and what it can become in the future. The more and more I have read, the more strongly I have come to believe that it is an idea (translated into a product and an ecosystem) whose time will ultimately come. Today I am writing about XRP and why I think that investing in the XRP for the long run might be a good idea.
The target market of Ripple
Cryptocurrencies are not an end in itself but the means to an end. While the blockchain technology behind Bitcoin was revolutionary, and to understand that you must read the original paper published by the anonymous Satoshi Nakamoto, there are some weaknesses and lag in this technology. The block chain technology and its payment mechanism satisfies a need - transaction between two parties where it eliminates the need of trust, and the inclusion of financial intermediaries.
"The transaction is the END, Blockchain technology is HOW you process that transaction, and a Cryptocurrency is the >WHAT with which you transact. The value of the cryptocurrency is governed by the amount of digital units of currency in >circulation (which is mostly limited), and the transaction size of the market."
In case of XRP, this market size is simply huge. It is an independent digital asset, native to the Ripple Consensus Ledger, and is the most efficient settlement option for financial institutions and liquidity providers seeking global reach, accessibility and fast settlement finality for interbank flows.
“XRP is faster, more efficient and more scalable. Designed for enterprise use, XRP can be used by financial institutions for on->demand liquidity for cross-border payments. Payment providers and banks using XRP will gain greater access to emerging >markets and much lower settlement costs.”
And how much are we talking about here? In 2015 alone cross border payments flows totalled more than $150 trillion. With a declining share of bitcoin, and the superior and focused distributed ledger technology of Ripple, and successful pilots already run with a number of banks, Ripple stands to gain a significant share of this market. With 100 billion units of currency (~35 billion in circulation) it’s anybody’s math that XRP can reach an attractive pricing in the mid to long term. Infact within April and May alone, the value of Ripple has increased by 10 times.
“Bitcoin’s market dominance, the total market share BTC holds compared to all the other alternative digital assets, stands at >its lowest point ever. In fact, altcoins (alternative digital currencies) now hold more than 30 percent of the total market share, >with bitcoin only grasping 68% of the entire market capitalization value” - Bitcoin.com
Successful adoption of Ripple by Banks
Ripple has successfully demonstrated pilot projects to banks and is working with some of the marquee names (and a lot of them actually). Standard Chartered bank is progressing in its digitisation agenda to facilitate trade, commerce, and investments and is working with Ripple. UniCredit, through its partnership with Ripple, is optimizing its global payments as one of the first major banks to implement blockchain technology in a commercial setting. SHRB is using the Ripple solution for developing a new commercial payment service for retail customers which would allow them to send money from China to the U.S. and other countries in real time.”
Ripple is already working with 15 of the top 50 banks, and it’s only a matter of time when they will adopt the XRP currency to transact using the solution implemented by Ripple.
Properly Addressing the fear of excess liquidity and marekt dumping by Ripple
It’s true that startups like Ripple are backed by VC firms, and they tend to retain and hold a major chunk of the cryptocurrency as a store of future value. The tendency to exit by offloading their shares of the cryptocurrency is high, and their holdings so great that it can rob the entire market of its value through the excess liquidity. Ripple has a total supply of ~100 billion units of XRP out of which the circulating supply is ~38 billion as of May 17th, 2017. Some 61.68 billion XRP lies with Ripple and to allay the market fears of dumping, and also to maintain a healthy liquidity, Ripple announced that it would place 55 billion XRP in an escrow account. There will be 55 contracts of 1 billion XRP each and every month only 1 billion XRP will be available to be spent. They have legally and very smartly taken care of this perception of excess liquidity and since then the price of XRP is only showing an upward trajectory. Not only Ripple has given the users a time of 55 months, but also given itself enough time for the technology and the currency to be adopted by the banks and for the huge market running into hundreds of trillions of dollars that it plans to cater to.
Disciplined accumulation and patience is the key
The current market capitalization of $15 billion is in for a huge increase in the coming months, and all you need is the discipline to keep on accumulating, and be patient with a time horizon of 6 years or so. I am not a price predictor, but the basics of it, the superior technology developed by Ripple, clear and existing adoption by banks, the size of the market ($150 trillion in 2015) that it plans to cater to, combining all of these factors, it’s anybody’s guess what putting your money in Ripple can do.