Analysis

XRP From An Investor’s Perspective

I’ve been an investor in Ripple since 2014. Lately I’ve been getting a few questions from followers on why I’m still holding XRP after the (~36,000%) returns in 2017, and why it’s still the only digital asset I own. There are a few reasons which I’m happy to share publicly:

  • #Progress. Most people see MoneyGram’s recent announcement to adopt XRP as a brave and spectacular management decision. But it really isn’t. What alternatives are there? MoneyGram could keep on processing crossborder payments through SWIFT and the correspondant banking system, which takes days, is unpredictable, expensive and ties up some >$900MM in interest bearing liquidity. Or it could try and utilize eg Bitcoin, having transaction fees of around $20+, no settlement finality and whose throughput and scalability isn’t anywhere close to allow for commercial implementations. So in the end, adopting XRP (4 second settlement time, 1500 transactions per second and fees of around 1/100th of a cent) is actually ‘just’ a very rational and economic decision. What’s driving MoneyGram is also driving other money transmitters. So I do expect a constant and positive newsflow of XRP-adopting institutions in the upcoming months and years, fueled by a ‘disclosure incentive.

 

  • #DisclosureIncentive. Ripple continues to have a very strategic and long term approach when it comes to XRP. Working with financial institutions usually is a lenghty process, covered by non-disclosure-agreements (‘NDA’). Note that first rumours of a MoneyGram partnership came up in 2015(!). As much as I understand the reason for NDA’s, it does hold down market prices, because the public isn’t aware of potential heavyweight partnerships and how the overall ‘pipeline’ looks like. But something remarkable happened recently. While cryptocurrencies had a negative connotation (‘bubble!’), hindering corporates to disclose respective partnerships, they are now being rewarded by capital markets for making their ties to Ripple public. Recent examples are Seagate, WesternUnionSBI Holdings, and MoneyGram.
  • #UtilityValue. It’s an unpopular view because XRP also profits from overall (rallying) market developments, but in my view it’s almost certain that today’s market for cryptocurrencies is in bubble territory: 1,380 cryptocurrencies are heavily traded, complexity is high, beliefs are strong, utility usually not in sight. All strong bubble indicators. I’m not having a view when useless tokens finally disappear. Could be next week, could be 2020. Encouraging sign: with the world’s second largest money transmitter planning (besides two other TOP5 names) to integrate XRP into its core payment flows, Ripple scored a “world’s first”. Via Ripple’s liquidity offering ‘xRapid’, XRP has reached a turning point, now building true utility value. Evidence is there, that xRapid already works for small Mexican money transmitter Cuallix (the first confirmed xRapid customer), including the desired impact on XRP. It’s important for an investor, as natural buyers act as a downside protection. Imagine you are MoneyGram and need to transfer a $1MM payment from the US to Europe. Today you’d need 500k for it (XRP/USD = $2). If the exchange rate drops to $1.90, you’d now need 526k to bridge the next $1MM payment, generating 26k XRP outright demand, driving the exchange rate back up. Of course this also works in the other direction, but overall it entails stability. Decreasing volatility attracts a new set of financial institutions and corporates. And there are quite a few on the sidelines (~30,000 banks globally + a decent number of payment providers).
  • #Potential. Speculative value is dominant in every crypto, including XRP. Utility value is hardly existant, maybe non-existant. As an investor I try to minimize my downside, so I like to think of a scenario in which all speculative value has vanished. How big could the utility value of a given crypto grow? XRP is unique in a way that its potential utility value by far exceeds today’s market/ speculative value. The digital coin would need to bridge a fraction of today’s $155tn annual crossborder payment volumes and/or to replace a fraction of the $27tn of stuck capital in global nostro accounts. I’m not talking the dimension of eg a company that successfully built a global social network with some billions of quarterly ad-based revenues. I’m talking about an asset that is intended to move around a share of the entire world’s monetary value.
  • #VirtuousCircle. Ripple is the biggest holder of XRP and also intends to use its pile to incentivize adoption. Ripple also incentivizes market makers to quote competitive spreads against XRP, so more payment volume is bridged through XRP, so network effects keep on building. In other words: every rise in XRP’s price makes it more likely to succeed. Having a >$100bn (XRP equivalent) holder whose goal is to make XRP the world’s primary value transfer vehicle is something very powerful.
  • #Holders. The majority of XRP investors understand the overall strategy, and they are in it for the long run (enabling an even more powerful virtuous circle).
  • #Hedge. To me XRP has become the perfect short/medium term hedge for every investor’s portfolio. Interest rates are at historical lows. Global central banks are becoming more vocal on raising main refinancing rates. It’ll make equities, bonds, commodities and real estate suffer at the same time once interest rates rise. It’ll also make opportunity costs for $27tn of (stuck) capital in nostro accounts rise, which should put XRP in heavy *demand*. It’s a second order effect, but it should enable you to watch everyone’s net worth going down while yours is going up.

See also: Instant Exchange by Changelly

Post by TplusZero, one of the most prepared person when it comes to XRP analysis and researches. It really worth the time to read what he says about Ripple and XRP investements. You can find the original post here.

 

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