Ripple Has Taken Its Ride; Now Look For A Continued Fall – Winklevoss Bitcoin Trust ETF (Pending:COIN)

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It’s been a few months since Ripple, the world’s third largest cryptocurrency (that’s not really a currency) had its infamous rise to prominence and ensuing media attention—most of which focused on the dramatic increase in wealth of the founders of Ripple.

Ripple’s got a long history; though never with so much attention on its price as in late 2017 and early 2018. Its price hit 1 cent for the first time early in 2017 (for an extended period of time) but the same year saw its price balloon to $2.28 on Dec 31, 2017 and an all-time high of almost $4 in very early 2018. Its price has stabilized back down to under $1 (and circulates around there), which is still a 200x increase from 1 year ago in February when it traded for half of a cent.

Like the other big coins, Ripple’s extraordinary price hike brought new daily volumes to a high nearly every day before settling with the rest of the market in February. But Bitcoin and Ether didn’t see the 75% drop that Ripple did; and I think that’s born out of what came to light in the enormous wave that Ripple owners and investors saw in late Q4 and early Q1.

Simply put: Ripple just isn’t worth the kind of value that a $1 price tag calls for; and certainly not anything above that. Our recommendation is to stay away from Ripple, or sell news coming out from its team.

Let’s start with most crypto investors’ favorite criticism of Ripple; it’s centralized. It’s a coin that lives mostly within its foundation that does not extol the de-centralized trust systems of most cryptocurrencies and blockchain innovations. And while centralization does not necessarily mean bad here; the promise of this new technology is the ability for a network to sustain itself and not rely on a centralized institution.

Ripple (the company) owns RippleNet which controls an enormous portion of the total XRP coins (This is why when XRP prices skyrocketed it increased the personal wealth of its founders so much). This isn’t good; and in fact this is what most of crypto is trying to rail against—an institution with enough power to sway prices and values outside of a free and international market.

XRP holdings from 2013 to 2015 – billion. (Source: BitMEX Research, Ripple.com)

The Ripple team will release 1 billion XRP every month for the next 55 months. This will help transfer the flow of ownership above into the distributed world (and theoretically open up much more for customers). There’s a positive to this kind of release and allows the team to have more control over its supply; but it also gives them a timeline on making XRP valuable otherwise the demand for the new supply will simply not be there. This thread (from an XRP based chat site) shows some more opinion on that matter).

This shows that Ripple, unlike Bitcoin with its decentralized nodes and algorithmic mining rewards, is housed under one main roof; and its success relies entirely on what that company can produce; less on a community of technologists that something like Ethereum, NEO, or others might use to calcify their blockchain into real existence.

Moreso, questions necessarily come back to XRP and its value. So here’s one point that’s necessary to understanding Ripple’s current value structure.

This article dispels quite a few points on XRP value, but the most important one is that Ripple provides OTHER products than XRP. The most important one is called Xcurrent and this is what Ripple’s 100+ partners in banking are using (with the exception of just one Meixcan bank using XRP). What gets confusing here is that Ripple (the company) talks of its partnerships and show its impressive list of the world’s banking houses, but they are not using XRP and certainly not adding value to XRP other than allowing Ripple to make revenue to hire more people to figure out how they are going to create XRP value. That’s it and that’s not a good place to be for XRP investors.

But okay, what’s the plan here? Well most speculate that Ripple is testing Xcurrent first and then can later transition customers to XRP, which by that time would be a superior offering (in speed and cost, its two main product features). So the timeline on the 55 billion Ripple would need to come as soon as customers are demanding the supposedly superior and future offering: XRP. And this is the big gamble for XRP investors. Xcurrent seems to be working in that it’s being used by Ripple’s 100 + banking partners, but the next part is more important for investors.

So what are the causes for concern here? Well, Ripple and XRP may not provide the immediate and urgent value to the biggest banks that they’d need to use this system. In fact, six banks have already formed an alliance (and a powerful one at that) to create their own “utility settlement coin” which would have its own corresponding blockchain (one would assume). If these companies can leverage other blockchain technology (and there’s a lot of engineering talent going into this space) to beat out Ripple’s standard of 1500 transactions per second, it doesn’t bode well for XRP use case amongst the biggest money movers in the world. (This point is even furthered by the news that Swift, the system that Ripple is seeking to disrupt, is going to challenging XRP with its own blockchain solution).

And, though, that might be further off, there’s going to be a waiting game to see what these banks do that could start shredding off XRP’s likely bloated $37 billion market cap (which as this article points out is a high price for a company with two real-world test cases and a company that still is being pressured to put out technical whitepapers to assuage doubters). Most companies with this kind of value (and because of coin ownership Ripple does have this kind of company valuation), are well past whitepapers and into product enhancements at this point.

(Breaking news on Tuesday night has another new use case for XRP, which is worth looking into as this progresses)

Then there’s just the question of XRP adoption; the single biggest ticket for most here. This author’s piece does an excellent job of getting opinions on all sides for that—including the Ripple team. One anecdote he does provide though is from a source in finance who has seen RippleNet tested and shared: “I know of no banks that are a) using it, or b) would touch it in any way as it is controlled by a SV company and 20% of all XRP in existence were taken by the founders. Ripple’s approach with XRP has been to get it listed on a bunch of exchanges and ‘infer’ but never explicitly say that banks are using it for settlement. We (and all the global players that I work with) are not. We wouldn’t touch it.”

What’s more, banks that have started using Ripple’s offerings in any serious manner, are not using it in a way that provides the token with value. As reported on MIT’s excellent Technology Review, Ripple’s blockchain-based payment network doesn’t need a bridge currency to work, and nearly everyone using the network has so far chosen to exchange digital IOUs instead. They settle the transactions later, using fiat currency.”

The last piece has to do with how these institutions will use any XRP they’ve earned or used. The MIT piece speaks to the bridging of costs being done in fiat, which if continued will not have a positive impact on XRP price. But the whole story is what many authors have pointed out as a disincentivation for XRP customers (banks) to see a rising XRP price. As the Hackernoon piece linked earlier points out, “This means banks will hold XRP for the absolute minimum amount of time they can. And given the speed of the Ripple network; that time is 4 seconds. With banks the actual users of XRP not holding onto their coins, XRP’s market cap will decrease and EVEN AT SWIFT LEVELS will only result in approximately $230 million.”

There is positive news in the Ripple world, though, and I think this news keeps the XRP price floating above $1 for quite some time (especially with the kind of false hype that is put out by Ripple fans like this article which says Amazon would be smart to use XRP – which this author completely disagrees with). So there’s an opportunity for a quick gain and then a potential big short on XRP with news of banking leveraging other tech.

Keep an eye on Ripple news, but take some time to understand the unique position that XRP operates in. Be ready to sell, short, or jump ship if you have it. If not, we’d recommend doing more research before getting in on this one.

Disclosure: I am/we are short XRP.

I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

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