The Ripple cryptocurrency XRP has been the center of attentions, rallying to unprecedented heights over the last month but what is truly fueling the rally?
[Note: This is an Op-Ed]
XRP Shoots Up 445%
Ripple has been enjoying a phenomenal month on the price charts, constantly breaking all time highs and dominating daily trading volume.
Although recent times have been filled with exciting rallies, XRP has overshadowed every altcoin out there, growing over 445%% in two weeks, making it the second most valuable cryptocurrency with a marketcap of roughly $14 billion.
The rally experienced in the XRP price charts can be attributed to recent news on the cryptoshpere like the addition of new customers (banks, and payment service providers) to the Ripple network. This also includes news of the Bank of Tokyo-Mitsubishi UFJ, which recently joined Ripple’s Interbank Group for Global Payments, and the announcement to lock a large portion of the company-owned XRP tokens under escrow.
Some have also pointed to the current cryptocurrency landscape in Japan (where Ripple holds a strong community presence and has made several bank partnerships), and how the new regulatory stance of the country can be supporting a new wave of misinformed investors.
In a recent blog post, Co-Founder of IndieSquare and Community Director at the Counterparty Foundation, Koji Higashi stated:
Another thing to note about this new trend is that the general lack of understanding or appreciation of the technology by many of new users. This is no surprise and all of us have been there at one point but the new wave of Japanese investors seem to be exhibiting a whole new level of incomprehension and misguided decision making in my opinion.
However, it is becoming evident that the general lack of knowledge regarding what Ripple is and what the recent updates actually mean is global as XRP has been dominating trading volume in the BTC market as well.
Fueled by Misinformation?
Although Ripple been one of the most valuable cryptocurrencies in terms of market cap for quite some time, its recent rally can only be fueled by the recent rumors and news regarding the XRP token. The most relevant of which are the customers and partnerships acquired by Ripple and today’s announcement regarding Ripple’s 55 Billion coins being locked, which has been circulating the web as a rumor for a while now.
Given the scenario, many investors that are now joining the Ripple boat must have no idea what they are buying and how the news actually influences the demand and supply for the token in the long-term, once the “hype” has died down.
For example, many users believe that banks and other types of financial service providers that are joining the Ripple network should create demand for the XRP token, which is needed in order for banks to make use of the technology that Ripple has created, one that rivals VISA itself in terms of transaction throughput.
However, the general public doesn’t seem to realize that these institutions are “encouraged” but not required to use XRP to pay any kind of operation fees. Instead, they can simply make use of the technology provided by Ripple and build their own network using their own in-house tokens.
It is also a known fact that Ripple holds ~62% of the XRP supply, which is capped at 100 billion. This means that Ripple currently has roughly $23 Billion worth of XRP. Standards on how marketcap is measured in the cryptocurrency space vary but if you count all of the XRP that currently exists, Ripple has a ~37 billion dollar market cap, or over 7 billion dollars more than Bitcoin.
Another general misunderstanding is that the token-lock result in scarcity of XRP tokens. According to the announcement, Ripple will lock 55 billion tokens out of the 62 billion tokens they own as a means to inspire trust (or perhaps to further accelerate the price growth of XRP).
The truth is that this will affect the supply of XRP. The tokens that have been in the possession of XRP will continue to be held by the team. In other words, no XRP will be removed from circulation. The number of XRP available on exchanges and wallets today, will remain unchanged. Unfortunately, some less-informed users believe this will create some sort of artificial scarcity.
One should also note that Ripple’s pledge to lock any amount of tokens is nothing but fireworks, given that the centralized nature of Ripple allows it to change the rules at any time.
A post by Ripple that seeks to compare the characteristics of Bitcoin, Ether, and Ripple makes this clear:
In contrast, the Ripple Consensus Ledger has proven governance with institutional validators run by MIT, Microsoft and leading global banks.
Lastly, user’s should also note that these tokens won’t be locked for long. The official announcement reads:
We’ll use escrow to establish 55 contracts of 1 billion XRP each that will expire on the first day of every month from months 0 to 54. As each contract expires, the XRP will become available for Ripple’s use.
Crypto End-Game
Despite the aforementioned misunderstandings, it should also be noted that Ripple is certainly not vaporware. The Ripple company is building real technology that is being used by real corporations.
But traders should keep in mind that whatever Ripple is building, it is building it for the banks and middlemen, not for the people, per se. This, in my opinion, puts it in a whole other category than Bitcoin and many other decentralized cryptocurrencies, whose goals are to eliminate middlemen, decentralize money, and empower the individual.
Is the XRP token in a bubble? Or is there something else we are missing? Let us know what you think is driving the rally in the comment section.
Images courtesy of CryptoCompare, Ripple, Shutterstock