As a seasoned analyst with over two decades of experience in the financial markets, I have witnessed numerous bull and bear runs, market crashes, and recoveries. The current state of XRP, despite its underperformance relative to its all-time high, doesn’t surprise me. However, CryptoTank’s analysis sheds light on a unique aspect that warrants our attention.
In the ongoing crypto market trend, XRP has struggled to keep pace and is currently trading at around 86% less than its peak value of $3.84, which it hit on January 4, 2018. Surprisingly, even after various ups and downs over the years, the price of XRP in October 2022 resembles its level from two years back. A well-respected crypto analyst named CryptoTank (@Tank2033js) recently offered insights on XRP to explain why its value isn’t rising as some might expect. This explanation garnered significant interest, with over 214,000 views.
Why Is XRP Price Stagnating? When Will It Change?
CryptoTank started discussing the frequent queries regarding XRP‘s price stability. Here’s a simple breakdown for our newcomers and those who may still find the pricing mechanism puzzling,” he said.
In his explanation, the cost of XRP is determined by splitting the worth or number of transactions conducted on the XRP Ledger (XRPL) by the current supply of XRP that’s in circulation. However, he underscores that the frequently mentioned circulating supply figure of around 56 billion XRP can be deceiving. “Even though 56 billion XRP is in circulation, it doesn’t imply that all 56 billion are available on the ledger for use,” he pointed out. A substantial portion of XRP is kept in personal wallets by large investors referred to as “whales,” held on exchanges, or not engaged in daily transactions on the ledger.
He contends that it’s the quantity of active supply on the ledger that primarily influences price. Assessing that around 20% of the total supply is actively used each day, he proposes that approximately 10 billion XRP are being utilized within the ecosystem of the ledger. This active supply plays a significant role in ensuring liquidity within Automated Market Maker (AMM) pools, which enable transactions by pairing XRP with other tokens or currencies like RLUSD (Ripple USD), thus streamlining transactions.
In simpler terms, when banks and financial institutions decide to use the XRPL for their transactions, they can either create their own tokens or use central bank digital currencies (CBDCs). They can also pair these with a stablecoin called RLUSD and utilize the liquidity found in automated market maker (AMM) pools. The XRPL has an algorithm that finds the quickest and most efficient route for settlements, usually preferring XRP as the primary means unless another option provides a more advantageous path. Essentially, this algorithm defaults to using XRP for settlements, only switching to something else if it offers better options, which is unlikely.
To illustrate the potential magnitude of value transacted on the ledger, CryptoTank highlighted the daily settlement volumes of several major financial institutions. SWIFT, the global provider of secure financial messaging services, processes approximately $5 trillion in daily settlements. J.P. Morgan Chase, one of the largest banking institutions in the United States, handles around $10 trillion daily. Bank of America processes about $7 to $8 trillion each day, and SBI Holdings in Japan settles approximately $2 trillion daily. “That’s about $25 trillion daily in settlement with just four banks/institutions,” he points out.
Additionally, it’s reported that Ripple, the creator of XRP, has over 1,700 confidentiality agreements with various banks and financial institutions, indicating a wide potential user base for the XRPL. If just 10% of the settlement volume from these four institutions were to be processed on the XRPL, this would estimate a daily transaction volume of $2.5 trillion on the ledger. To prevent transaction failures, which are crucial for banks, the liquidity in Automated Market Making (AMM) pools should be substantial. This implies that the liquidity in these pools should be around double the $2.5 trillion value to avoid transaction failures and smooth operations within the pools. In essence, the total value or volume on the ledger would need to be approximately $5 trillion to manage these settlements efficiently, as banks cannot tolerate failed transactions.
To find out how much each XRP should cost for smooth and reliable cross-currency or CBDC settlements on a daily basis, given a liquidity pool of $5 trillion and 10 billion XRPs in those pools, you simply need to divide the total amount by the number of XRPs. This calculation results in an estimated XRP price of $500, which he stresses is necessary for successful daily settlements. In simpler terms, he’s saying that to make sure XRP can handle daily transactions without issues, it needs to cost approximately $500 each.
“He points out that this simple scenario demonstrates potential outcomes when banks routinely employ XRP for transactions. He also mentions that additional elements, like tokenizing assets, debt, and property, could boost the ledger’s worth in the future.
Addressing skeptics who doubt the potential for XRP to reach such high valuations, he states: “For anyone saying XRP will never be a high price, you really don’t understand what XRP is going to be used for or how it works. Retail doesn’t matter, market cap doesn’t matter, charts are nice to look at but don’t matter either.” He argues that traditional metrics used to assess cryptocurrency value are less relevant in the context of XRP’s intended utility for institutional settlements.
He argues that predicting the required liquidity or depth of Automated Market Making (AMM) pools for settling over 1,700 Non-Disclosure Agreements daily is impossible to determine accurately. He states that the exact amount needed is uncertain. For XRP to work effectively as intended – facilitating swift and cost-efficient handling of large transactions – it needs to have a high value, or else it won’t perform optimally.
However, not everyone in the crypto community agrees with his assessment. A user representing chart analysts on X responded to his thread, stating: “Wrong: The chart is the only thing that matters. Buy coins based on chart technical analysis and you do a lot better than buying narratives and hoping for it to pump. That’s why 99% of retail fails. Sad but true.”
In response, CryptoTank upheld his stance, underscoring the significant transformation coming to the cryptocurrency market due to increased institutional involvement. He stated, “It’s evident you lack understanding about utility tokens and the global changes happening in this sector.” He continued, “Soon, individual speculation will be overshadowed by institutional adoption and use. Most coins will become outdated. The big players are entering the market, and everything will evolve.
At press time, XRP traded at $0.542.
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2024-10-14 15:41