Let that data sink in for a moment. Roughly $27 trillion is parked in transactional accounts at this very moment to facilitate the transfer & settlement of the comparably smaller figure of $9.8 trillion on a daily basis. That means that XRP will need to have a market cap of $9.8 trillion just to accommodate the average daily transactions of all cross border payments systems in order to achieve 100% market share. While I don’t find it reasonable to predict XRP will be used for all payments within this market, at the outset of this blog I cited my goal as pegging a reasonable upper limit to the value of XRP. This assumes 100% dominance. Here goes:
- There are currently 38,739,144,847 XRP coins in circulation at the time of this writing. I’ll round up to 39 billion for the sake of simpler calculations
- Assume a market cap of $27 trillion for XRP which is the value that is already in nostro accounts today. To determine the value of each individual coin we divide the market cap by total circulating supply, or $27 trillion divided by 39 billion. That comes out to a value of $692.30 for each XRP coin.
That’s the number; $692.30 per XRP. That was calculated using the most accurate estimates available based on knowable data, and only considers it’s use case as a mechanism for cross-border settlements by financial institutions. That being said, this figure doesn’t do much to help us determine what the true value of XRP might be one day because too many things are unknowable.
The reason $27 trillion is sitting in nostro accounts just waiting to be used to facilitate payment transactions is that it currently takes upwards of 5 days for a transaction to settle, and the demand for transactions ebbs and flows. Thus, financial institutions must have much more money sitting idle in transactional accounts than they think they’ll need, just in case. Compare that 5 day transaction time with XRP which takes a mere 4 seconds to settle transactions. I find it reasonable to speculate that not much more than the average daily value of transactions, $9.8 trillion, would need to be held in the form of XRP if financial institutions adopt the technology. That would mean a lower upper limit when speculating about the future value of XRP than if $27 trillion were still needed to be on hand for liquidity. However, if XRP became the standard for transactions, you could expect an increase in the volume of cross border transactions. Put simply, the speed and low cost of XRP sourced transactions would create an unknowable amount of new demand which would increase the XRP market cap, and with it the value of each coin.
A Moving Target
The trouble with price speculation is that the value of the factors that are needed for calculations are always changing. In December 2017 Ripple placed 55 billion XRP in escrow and will release a maximum of 1 billion XRP per month until the entire supply is in the market one day. This will radically change the amount of XRP in circulation over time. The implications of such? The point at which the supply of XRP meets the demand of the market will change regularly and will result in a continually shifting equilibrium price. However, it’s also true that with every single transfer of XRP, a tiny amount of it is shredded forever, decreasing the supply slowly over time and making it more valuable.
Our advice of the day is to buy; target price fixed between 0.90 – 1.45 USD.
In the next coming weeks, Ripple CEO will attend several public events, we believe he will announce important partnership between Ripple and banks.