XRP: A potential monopoly or the biggest pump & dump in history?
In January 2018, Ripple’s XRP token soared to become the second highest value cryptocurrency in the world briefly, hitting a market cap of $122 billion dollars, and one of it’s founders – Chris Larsen – becoming the 8th wealthiest man in the world with holdings estimated to be worth $55 billion
Ripple is trying capture the world remittance and multi-trillion dollar daily global interbank transfer market– the Ripple consensus ledger can handle 1000 transactions per second and XRP payment channels allow transaction throughput to increase to tens of thousands of transactions per second, close to levels achieved by Visa.
If It can achieve its goal to build significant share of this market, it is very likely it could eclipse all other cryptocurrencies in terms of market capitalization. Unlike other cryptocurrencies that typically compete in crowded segments, Ripple is in the unique position of targeting one of the largest potential markets while enjoying no direct competition from other crytpcurrency projects
There remain significant questions about how strong the actual use case is for the XRP tokens – if banks use the Xcurrent platform to move funds, they won’t actually be required to purchase the token. Even if they do, they will only need to hold XRP for a few seconds before liquidating that position which arguably may not be a significant growth driver for XRP itself.
A well-documented concern of XRP is that they are unusually distributed, with 60% of circulation held by founders the company and insiders. When and how these locked away holdings are liquidated could have a huge impact on the price
Although this liquidity could be seen as an advantage for potential investors as it could be used to support and finance future growth of the company. Its also possible this 60% could supply all the needs of the banking industry without the need for users to purchase XRP in the open market – possibly limiting the positive price effect of increased adoption.
Banking industry interest for Ripple has been encouraging – but the route to genuine adoption is a long one. Various financial institutions located in the EU, Japan and UAE have agreed to trial Ripple’s underlying xCurrent distributed ledger, if successful it would take a significant amount of time before their protocol is rolled out in its entirety.
Another risk to be aware of is, given that this tech is totally aimed at risk-averse financial institutions, any significant security break or failing relating to the Ripple project could have a huge impact in its wider adoption with the wider banking community.
A major feature of the price action is the periodic marketing-driven price spikes, having appeared twice in the last year. During these price ramp-up periods, Ripple engages in aggressive and broad-based marketing strategies – which in turn boost overall market interest in XRP. The result is large surges in the price – most recently the price in the period of early December 1017 to early Jan 2018 went up 16 times. Building shorter term investment strategies around this price cycle could be a profitable model.
If Ripple is able to capture a large percentage of the global transfer market, and if its users are required to purchase XRP, to conduct these transactions – then its possible that XRP could become by far the largest cryptocurrency by market cap. Many hurdles do exist – with the current commercial projects largely in the pilot phase, leaving broader industry adoption elusive.