Ripple XRP has been making news for the past few years, but not as much as this past week. Having secured a long-awaited victory over the U.S Securities and Exchanges Commission, traders and investors are anticipating this asset might lead the next bull run.
This article dives deep into potential reasons why you as an investor might want to get a position in XRP now!
Some Housekeeping Principles of Finance
There are three basic principles that determine the value of an asset:
Supply and Demand
The law of supply and demand is a fundamental principle in economics that explains the relationship between the quantity of a good or service supplied by producers and the quantity demanded by consumers.
With little demand, you will be left with a supply of assets that have little value. The opposite is true – you will have skyrocketing prices.
Market Appreciation
The concept of “market appreciation” in the context of financial markets refers to an increase in the value of assets or securities in a financial market. The key driver of market appreciation is typically the increase in demand for those assets, which leads to higher prices.
Here is a simple analogy to better understand:
You build three houses, A, B, and C, and sell them all at $250,000 each. The Market Value for the neighbourhood at the time of sale is $750,000. A few years later, “C” sells for $500,000 and now all three houses are worth $500,000 each. Market Value just jumped from $750,000 to $1.5M which means the neighborhood doubled in value.
However, only $250,000 of “new” money entered the neighbourhood, bringing the original money injection to $1M. So, the other $500,000 in the ‘hood market cap is “Phantom Money”. This is due to the willingness to pay a price for an asset of perceived value.
Limited Assets
Also known as scarcity, the concept of limited assets is a fundamental principle in economics that refers to the condition where the available resources or goods and services are insufficient to meet the unlimited wants and needs of individuals and society.
For instance, the Mona Lisa is valuable because it’s the only one. We can make copies, or what we call “Derivatives”, but we can’t make more (original) Mona Lisa’s. Also, because of its importance to society, we place a high price on it. However, that value only exists in our minds.
Moving on to Ripple (XRP)
If you happen to be new to XRP and Ripple, here are some quick facts about this asset.
- There’s a limited supply of less than 100 billion coins.
- Each ledger transaction destroys or “burns” a small portion of XRP to validate its transfer. This makes XRP a deflationary cryptocurrency
- With XRP, you can issue any other asset on the Ledger (IOUs). This simply means you can create tokens on top of XRP Ledger (XRPL), the same way ERC20 tokens are created on the Ethereum blockchain.
XRP’s price today is dirt cheap, going for $0.79 per coin. This is because almost all trading is a small public pool of existing money that’s essentially wash trading back and forth through retail. The public supply is important because that determines the price. In crypto trading, circulating supply is critical.
As of July 19, 2023, 09:02 AM UTC, the XRP market cap is $40.8 billion. However, this doesn’t mean there is actually $18B of money that has been put into XRP. (Remember the analogy of Market Value?). There’s far less as the market cap is just a reflection of the current value anyone is willing to pay. (Phantom money).
Are Banks to Use Ripple (XRP) in the Future?
By now, if you are somewhat active in the crypto community, you have probably heard that banks will send U.S Dollars to public exchanges, convert them to XRP and then convert them back out as something else (Euro, etc.) in the following fashion:
USD (Fiat) ⇆ XRP ⇆ EUR/ JPY/ CAD...
This is Ripple’s software ODL (On Demand Liquidity). Contrary to the assumptions of many, This won’t necessarily drive up the price because ODL is really for the minor leagues. It levels the playing field for small banks and money transmitters to eventually eliminate the dependency of correspondent banking on major banks allowing competition to flourish.
Large banks, like Bank of America, Chase, Wells Fargo, etc will not use ODL the way many think. Chase is not going to rely on Kraken or Binance to source public exchanges for trillions of dollars in global transfers.
Privacy is the Name of the Game
The road to $1,000 XRP involves PRIVACY. Even though the masses and retail traders don’t want to acknowledge it, Ripple Labs have been very clear about it – XRP was never meant for public retail trading. Banks require Privacy, that’s not gonna change anytime soon.
No bank on earth will expose its internal ledger transactions to the public. Privacy is for you. (i.e. you are not supposed to see/know). The bank needs to conduct business and create loans without prying eyes.
Large banks will be using private XRP ledgers instead of XRP ODL. This is equivalent to Ethereum side chains (L1/L2/L3) that are compatible with the EV machine. Using these private blockchains (aka ledgers) on XRPL, XRP will become a reserve currency asset.
Since XRPL can issue any other type of asset (such as CBDCs ????), Bank of America, for instance, can be able to create Bank of America coins (BOAcoin) on the XRPL.
To achieve this, Bank of America would create a private Ledger and hold XRP as a reserve asset (like how central banks hold GOLD as a backing asset). Bank of America would then create BOAcoin, an XRP derivative, internally for tracking balances in user accounts.
Internally, Bank of America can do whatever they want, as long as they hold a balance of XRP. They are not going to send their XRP anywhere, just like a GOLD reserve. On the contrary, they will seek to increase their balance to grow their business.
Big banks will Use Institutional Grade Liquidity Providers (IGLPs) ot ODL
To move cash around, the big banks will use something called Institutional Grade Liquidity Providers (IGLPs). These are simply also Private XRP Ledger that holds a massive basket of different digital assets.
The IGLP’s also hold a balance of XRP because they are third-party exchanges that require a transfer of the issued IOU Derivative into another IOU Derivative. The IGLPs are necessary because Chase Bank will never hold BOAcoin, and Bank of America will also never hold a coin belonging to Chase bank. This is called counterparty risk.
Therefore, bank-to-bank transfers will occur in the following fashion:
Bank of America(10 BOAcoin)—> IGLP(XRP)—>Chase Bank(10 CBcoin)
Therefore, all these secondary private XRP ledger coins need to be interchanged through XRP as the bridge currency.
Since they need XRP, it’s now a business dependency and just like gold, they’re going to go beast mode on hoarding what now is the most valuable asset on earth. The entire global transfer of money depends on it.
The Cascade Effect
The circulating public supply of XRP on crypto exchanges is far less than people realize. A lot of XRP has already been lost. For instance, banker and billionaire Matthew Mellon held a billion XRP and died – his keys lost forever.
With only about 20 billion Ripple XRP on exchanges, there is a low supply. The banks, when they are ready, (and they are ready) are coming for the public XRP supply and once they have it, it’s gone.
What happens when you wipe out the public order books in a matter of hours? .30c, .40c, .50c, and $1 XRP will disappear fast. When that happens, other exchanges will start arbitraging to the highest price, and private wallets will transfer into the exchanges in order to cash out. At that point, they’re not coming back to dump on the public market for profits – that’s peanuts compared to the business of global money transfers in the trillions.
The global US Dollar money supply in circulation is somewhere around $40 trillion. To be in the 1% of public XRP holders varies somewhere around 60,000 -70,000 XRP valued at about $55,000 as of the time of writing. Now add the rest of the world’s banks, the world’s billionaires who will want their cut, and the quadrillion derivative market, and you have yourself a mega bull run on this asset that will rise far beyond $1,000 per coin.
Final Thoughts
A few years ago this was just speculative talk. However, over the past year so many developments have taken place that it’s hard to ignore the signs. Ripple XRP is going places. When liquidity is added (no longer phantom money) Ripple Liquidity Hubs (aka IGLPs), then we shall see the longest green candle in the history of all trading charts.
Take our XRP Quizz
[quiz-gpt qid=”1″ topic=”XRP” num_questions=”5″ difficulty=”Easy” language=”English”]