The Ripple(XRP) Effect - Fundamental Analysis

3 months ago
48 in cryptocurrency

ripple.jpg

Lately, there’s been a tremendous amount of buzz around Ripple(XRP), but is it only because of the massive growth we’ve seen in the past few 30 days, or is there something more?

In this article, I’ll dive into a brief back ground of Ripple, objectively examine the arguments for and against it, explore its potential from a economic standpoint, then close with potential threats to your investment and a summary.


ripple.jpg

Meet Ripple(XRP)

Released in 2012, Ripple aims to enable “secure, instant and nearly free global financial transactions of any size with no chargebacks” through their real-time gross settlement system (RTGS) and currency exchange and remittance network. Ripples distributed open-source internet protocol consensus ledger was created as basic technology for interbank and regulated financial institutions to integrate Ripple into their own systems. This differs from the Bitcoin full node and other crowdsourced altcoin consensus networks in several ways:

  • Ripples common shared ledger is a network of independent validating servers which compare their transaction records, rather than the full network of nodes coming to consensus prior to each transaction, enabling faster transaction speeds.
  • Although their protocol is open source, it was not created as a plug & play solution, like bitcoins full-node software, nor does it rely on crowd-sourced support.
  • Unlike Bitcoin, Litecoin, Ethereum, and other Alt-coins, Ripple is recognized as legal tender by several governments, which gives it instant liquidity via financial institution, as well as purchasing power over material goods. Because of this, it cannot be evaluated in the same ways as other coins, which are largely evaluated based on assumptions & speculation.

In terms of value, it’s more like cash than a commodity. Because of this, it is evaluated in a much different way than Ethereum(ETH) and other alt-coins with intrinsic value, but is accepted much more rapidly because it’s easy for the mass-market to understand. Remember: without market acceptance, there is not value, regardless of how innovative something may be.

Just 4 short years after its release, on 01MAY17, Ripple announced that a consortium of 47 banks have successfully completed a pilot implementation of Ripple in Japan, making it the first country in the world to enable domestic and international real time money transfers via the cryptocurrency. This event lead the XRP value to sky-rocket from $0.051580 USD to an all-time high of $0.430085 in just 16 days… but why? Is it 100% speculation, or is there something else going on here?


“It’s not a real cryptocurrency!”

Or is it? Well, those whom bring this argument to the table are probably referencing facts that I’ve mention during my introduction to Ripple: Its a centralized and regulated crypto-currency which does not need global consensus for transfers, and it is built specifically for (and potentially by) financial institutions. Though a lot of the Anarcho-Capitalists may want to steer clear of this one due to its highly regulated nature, regular capitalist may believe these core differences to be its greatest strengths:

  • Regulated - As I mentioned in my analysis on Ethereum(ETH), Bitcoin’s lack of regulation was likely he reason (or at least, that’s what they told us) that the proposed ETF failed to pass the SEC’s evaluation several months ago. If adhering to some sort of trusted regulatory standards, this could drive federal confidence, which in turn drive bank and lending institution faith…trickling all the way down to the consumers. This insures rapid mass market acceptance.
  • Consensus - As mentioned before this is much different process than Bitcoin’s global consensus, which means that transaction times are nearly instant regardless of volume transferred. Additionally, all transfers adhere to distributive ledgers DLT standards, which is a requirement for many financial institutions to be insurable.
  • Institutional Management - You’ve probably guessed this one already. Although the demand and speculative value is driven at some capacity by ‘the people’, this currency is about as close to the World bank and SWIFT as you can get. This is largely due to the amount
  • Deliberate - It feels like a big bank, because it is. Ripple was built specifically for the financial markets, which is why they specifically targeted regulatory compliance.

shutterstock_289877267_long_read_cover_large.jpg

Economic Value

As mentioned in the last point, Its easy to see that Ripple offers tremendous value to financial-institutions and retail investors. These two groups make up 358 billion (numbers from 2013) non-cash cross-country annual transactions, and the FOREX market which sees more than $5.1 trillion $USD each day. Per a report released by Capgemini and The Royal Bank of Scotland, this is growing at an average rate of about 7.5% each year globally, though China and other Emerging Asian economies have been leading the charge at around 21%.

Seems like a lot, right? Well, for sake of uncovering the immediate value of XRP, we will zoom into the recent adopters of the distributed ledger technology: Japan, India, and the Central Europe, Middle East & Africa(CEMEA) regions.


Japan.jpg

Japan is the third largest economy in the world by nominal GDP ($6.11 trillion), fourth by purchasing power parity(PPP) and second largest developed economy. Currently, their GDP per capita is roughly $48,412 (vs $56,430 in US) and their major trade partners include the US, China, Hong Kong, Australia and South Korea.

Japan GDP.png

Aside from the speculation that they maybe soon pressure their trade partners (excluding the US and China) to adopt a system which allows for instant, near free transfers of funds, here’s where it gets interesting for the immediate future: Japan has already started accepting Ripple(XRP) as legal tender. If Ripple raises to just 25% of the overall transaction volume of P2P, P2B & B2B within Japan itself (represented in the chart by Other Services, Real Estate, Retail, Transport, Communications, Finance & Utilities) which is equal to about 20% of their overall economy, Ripple would be handling roughly $1.27 trillion USD in Japan – alone - every year. To put that in perspective, the current (at the time of writing) market capitalization of Bitcoin(BTC) is $30.7 billion USD (or >0.4%). Unlike Bitcoin, Ripple is legal tender which means that it can be exchanged for material goods and services, which means that it’s likely to have explosive acceptance in the local area.


India.jpg

India-based Axis Bank announced in April that they will soon begin leveraging distributed ledger tech for cross-border transactions and to make banking simple and convenient for their customers. About 15 days’ prior, another large financial institution, Yes Bank, also announced that they would be adopting Ripples ledger for the same reasons. If Ripple continues to grow in acceptance at this rate in India, we could see another economy, roughly 1/3 the size of Japan’s ($2.074 trillion USD) add to Ripples annual transaction value. Now, from an economic stand point, this is most interesting because agriculture represents more than 50% of India’s employment, which means that India would be the 2nd case of consumer trading Ripple for staple foods.

India GDP.png

It is likely that Ripple will not handle as large of a percentage of overall transaction volumes in India because only two major banks have adopted this currency and it is not the only Crypto. The latter is probably one of the most important variables, as this means that Ripple will be duking it out for market dominancy. As all of my projections are fairly conservative, I would estimate that Ripple will handle roughly 10% of India’s over all transaction volume in the next 365 days, equal to roughly $311.1 billion USD.

One last thing that I would like to mention is that India is literally the ‘I’ in BRIC and roughly 13% of the BRIC countries total output. If the BRIC comes to fruition, India may be able to convince it’s other close trade partners to jump on the XRP-Train as well.


Dubai.jpg

Abu Dhabi Bank, the National and largest bank of the UAE, has already begun offering cross-border transaction services with Ripples distributive ledger technology as well. As they deal extensively with their middle eastern neighbors, such as Saudi Arabia, and Qatar, the UAE is likely to set a trend for other CEMEA countries to follow.

UAE GDP.png

This might be a surprise to some people, but Dubai’s largest industry is the energy sector (shocker!) followed closely by Real Estate and their Finance industry (double shocker!). Although their GPD is much smaller than Japan and India’s (about $370 billion USD), I am anticipating Ripple to handle a larger percent of the UAE’s transaction volume (31.11%), especially in the finance, Real Estate, Retail and Logistics industries. This is due largely to the fact that their population is only roughly 9.157 million, but most Abu Dhabi nationals are very financially inclined (or at least heavy spenders).


Potential Threats

As this threatens SWIFT (unless they are completely on board) and the US dollars’ supremacy in the economic & financial markets, I would not be surprised to see a false flag attack, in which the NSA attacks Ripple and blames it on North Korea or China. Frankly, this would be a cake walk compared to Stuxnet or WannaCry and they could probably hand the task to an MIT intern. Where semi-centralization is Ripples strength in terms of transaction speed and regulation, it is also the biggest security flaw and may open it’s user to some heart ache, hair loss and heavy drinking over the next several years.


Possibility

So, what is possible in terms of value over the next few years? Well, if we consider the following scenario:

  • XRP accounts for roughly 20% of Japan, India full GDP, but 31.1% UAE’s GDP ($7.152 Trillion USD) total exchange volume in the next 2 years
  • Max XRP Supply stays at 100 billion
  • No other countries adopt XRP (not likely)
  • No hacks or other catastrophic events remove confidence
  • Exclude speculation, demand, rallies, and GDP growth projections for each country

Then we’re looking at each Ripple(XRP) market capitalization over ~$1.75 Trillion USD, making each coin $17.52 in real value. This means that if you were to invest today at $0.362794, your ROI would be about 4,989%. That said, I think that it’s likely it will go over $30 in the next 2 years, due to speculators flooding the markets and other countries signing up. Again, these are conservative numbers are based on total transaction value in USD equivalent.

For those whom subscribe, I will update as new variables are available to my appraisal


Bottom Line

Although it was most definitely created by an insider of the banking industry and does not ‘feel like a crypto’, I personally feel that due to its rapid market acceptance, liquidity and position as legal tender in 3 large economies, Ripple(XRP) is both primed for explosive growth in the near future and likely to be one of the safest value based Crypto-investments we can make today.

Another thing, China is the anchor of the West Pacific, so we should all watch their evaluation of Ripple, very closely. If they were to jump on the XRP-Train, you are likely to see Australia, South Korea, Indonesia and Singapore do the same.

If you enjoyed this article, be sure to share & subscribe, as I have kept my proprietary models and will update as major events and additional countries begin to adopt this currency. If you feel that I have missed something or am just flat out wrong, please be sure to let me know in the comments below!


Planned articles for the next 14 days:

  • ICO advice from a Venture Capitalist (Follower Request)
  • Paper Wallets (Follower Request)
  • VIVA Analysis (Follower Request)
  • Segregated Witness(Segwit) : Friend or Foe?
  • A Kraken ate my gains...
  • Fundamental Analysis: Stellar Lumens(XLM)
  • Dual-Citizenship and Banking in Panama
  • Rich vs. Wealthy

All analysis, numbers and projections are my own. Core information was gathered from reliable sources, such as the World Bank, IMF, CIA world fact book, eia.gov and more.

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Sort Order:  trending
65
  ·  3 months ago

Wow man! You really helped me understand a little more about ripple. I have a little in my wallet and I really see potential. Thank you very much for sharing this information. Steem on!

63
  ·  3 months ago

I've been looking for a good analysis of Ripple like this, thanks! I think I will buy some in this current dip.

I'm looking forward to your VIVA analysis and whatever else you post!

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48
  ·  3 months ago

Hey @kenny-crane,

Thanks for your thoughts. I'm looking forward to VIVA as well!

49
  ·  last month

A very good article @lennartbedrage. It is original content. This has been so scarce, unfortunately. Thank you.
I am sorry I am too late for giving a useful up-vote, but I am not too late for following.

I have a question about Ripple that would affect you analysis, if you don't mind:

How does the Ripple system use XRP? I mean that if a bank wants to use the Ripple network to transfer money, does it have to exchange their fiat money to XRP? Or does have to pay a transaction fee only?

I am sure you can appreciate the difference. If the bank has to pay fees only, then the size of GDP is not important, and hence, the analysis is not correct.

60
  ·  3 months ago

Not a bad write up.


Ripple's Consensus Ledger is very different than XRP

The one place you leave out is this difference. The Ripple Labs Consensus Ledger product certainly is described by your post fairly well. Everything that references XRP however, is not in fact a required component of the RCL network. While I will not argue about its possible utility, I will say that the current investors do not know what they have bought into and I am not certain how long this speculation can last (cough polo).

You have to understand what XRP is actually for. The Ripple Consensus Ledger (the thing that all the banks are using) is designed to allow value transfer between different currencies with a sort of hopping between different market makers. This happens without the utility of any XRP (yeah yeah fees, not the point here). XRP was designed as a way for many market makers to make a paring with - thus allowing for many transactions to occur with only one hop: curr1:->:XRP:->curr2

The value is skyrocketing due to many factors, not many of which are due to its merits as a crypto in the first place. if you can even call it a crypto - centralized...
-Me somewhere else.

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49
  ·  last month

That is a very important point @kyle.anderson.
If XRP is not used as a currency for trade but only to pay fees, then the GDP would not matter that much.

I would really like to know what is the role that XRP would play in the Ripple network. If you can guide me, I would appreciate it a lot.

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60
  ·  last month

well really it is to improve liquidity and to provide fee incentives. although I believe​ both are broken in some ways. there are better solutions with smart contracts now.

banks are not using XRP rn.

42
  ·  3 months ago

I boutght 1000 ripple in the crash yesterday, that's my gamble dollaaars

42
  ·  3 months ago

This is an amazingly well put together analysis of Ripple. It addresses each countries hurdles and socioeconomic reasons behind needing to utilize the banking institutions, for the time being. Upvoted, resteemed and followed!

44
  ·  3 months ago

Splendind work. You know I am already a fan!

52
  ·  3 months ago

I hate to ask this, but with al the copy-paste lately on steemit, i feel i have to... Is this your work? If it is, well done, good job! I love it!

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48
  ·  3 months ago

Hello @skririm,

Yes, these are all my numbers, charts and analysis, though I did copy the pictures from google lol. This post is worth about 14+ hours of research.

All content that I post is my own.

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52
  ·  3 months ago

Great! Sorry for asking! I love the way this is written! I'll resteem it later on the day! Good job! I will follow you for more of this :-) I have a paper (thesis) to turn in next week, when that is done I'll start to write articles like this one! I love the style! Good job!

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48
  ·  3 months ago

Excellent, thanks for the resteem and kin words. I'll follow back!

28
  ·  3 months ago

Very interesting post, thanks

49
  ·  3 months ago

I so enjoy original content, this is great information. I'm new and see a bunch of nonsense get lots of upvotes and some great original content get overlooked.
My question is why do you think the price is still low and not skyrocketing like some others, if the big boys can see where rip is going? I am just learning how to buy crypto, but plan to lay some $$$into rip, but given banker history it's always us little folk that get fleeced.
https://steemit.com/news/@bitcoinforblonds/brand-new-to-crypto-s-blonds-seeking-help-to-get-started

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48
  ·  3 months ago

I'm glad that you enjoyed it.

My question is why do you think the price is still low and not skyrocketing like some others, if the big boys can see where rip is going?

At it's current price of $0.327198, Ripple(XRP) saw 885.88% gains in the last 18 days.

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49
  ·  3 months ago

hope it stays low, I've had a time setting up accounts with coinbase (yea it sucks everyone said it was easy for beginners) and now I' trying to open a bittrex account, do you (if you do) buy xrp do you buy direct from its site or another exhange?

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48
  ·  3 months ago

Coinbase is great for beginners, but terrible on your P/L. Before you sign up, be sure to check out this article I wrote on how they operate and some problems I've had with them.

I purchased the bulk of my XRP from Poloniex on 01MAY17 with Bitcoin, but I've heard that they were going through some issues as of late. Kraken & Bitstamp also trade XRP, but it's likely that you will have to start with BTC. Both will allow you to exchange fiat for Bitcoin, so you could go that route.

Personally, I feel that Litecoin(LTC) is running low at the moment, and will shoot up in the near future. If you wanted to buy LTC and wait a week, it could hit $30 again (bagging you a 50%) then exchange to XRP if you like... but it's really up to you.

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49
  ·  3 months ago

too late I already signed up, I also heard coinbase wont let you move lte or eth only bC, trying to set up my Bittrex account, I'd put it out there asking for suggestions and people said no to POLO and all the bittrex people were happy, I'll read the article (while awaiting the storms, I'm near big D too). thanks

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29
  ·  3 months ago

I too believe in LTC! I think we're looking at 100 by the end of the year. If it wasn't for the "Wanna Cry Attack" it would be 50 right now.

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48
  ·  3 months ago

You might be right about the attack, but I think that we'll see a $100 LTC by the end of the year. I'm sorry that I'm just now getting to this post, as it is a bit late, but check out this one that I wrote on how Litecoin(LTC) is undervalued, yesterday, just 12 hours before the 30% price jump.

50
  ·  3 months ago

So much better than MY article entitled "The Ripple Effect." (Posted it on my own blog, which is less technical and more aimed at the novice. http://metacoin.co/the-ripple-effect )

Note: the price speculation...I just don't know. I'd love to see your $30 projection come through. That would make early investors rather rich. (I got in at...maybe 10 cents? After being in and out at about half a cent or so for a couple weeks. My timing sucked.)

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48
  ·  3 months ago

Well, maybe I should have included this in my analysis here, but I was hoping to convey that it is definitely not too late to invest. Many probably said the same when Bitcoin hit $200, but what are they saying right now?

25
  ·  3 months ago

Excellent analysis. I don't think I've read an article on Ripple that is easier to understand than this one. Plus the objective (pros and cons) arguments. Bravo!

21
  ·  3 months ago

Fantastic article. Thanks for the effort you put into researching and writing it. You earned another subscriber.

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48
  ·  3 months ago

Glad to hear that you enjoyed the article, and thanks for the follow!

57
  ·  3 months ago

Thanks for the analysis. I have Panama stories, from childhood and the retired ones at the Watergate.

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48
  ·  3 months ago

I'm looking forward to reading them if you care to share. I'll soon be a citizen there...

44
  ·  3 months ago

veeeeeeeery insightful. thank you very much!

27
  ·  3 months ago

Moon here we come

43
  ·  3 months ago

Thank you for sharing your information. really helped me a lot

44
  ·  3 months ago

Nice info. Thank. I'm a big fan of xrp. U make me more understanding n more confidence after the price dump just now. I'm think the future is on the ripple.. the most bank trusted for the time being.

25
  ·  3 months ago

Nice article & well written. I'm following now. Surely you have also considered the Stellar model? It would be great to see your analysis for Stellar also :)

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48
  ·  3 months ago

Hello @blake-dunne,

I will likely be writing another on Stellar-Lummens(XLM) this week. I meant to do it yesterday, but it was a busy day with some things happening with Litecoin(LTC) and the Manchester attack.

36
  ·  3 months ago

Great analysis.
I believe xrp hit its low today 28 cents usd.
Expect another rally very soon hopefully.
Great people behind the company, and a clear use case... what more could we want!

64
  ·  3 months ago

As a cryptonerd, I have one policy when it comes to Ripple trading:

Always profit. Don't let those dirty banks see even a single penny of your funds.

Take as much profit as you can, and then buy truly worthy cryptocurrencies with it. Muhahah.

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42
  ·  3 months ago

I couldnt agree more. Lets steal some wealth from those pricks! :P

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29
  ·  3 months ago

PUMP AND DUMP!

25
  ·  3 months ago

Thanks for the great information. i still have some Ripple. hope they fly high soon :)

25
  ·  3 months ago

Nice analysis and article! The possibility chapter leaves me with a big question. How did you end up at the market capitalization of over ~$1.75 Trillion USD based on the things listed in the possibility chapter? I don't seem to be getting anywhere other then that it is roughly 1/4th of the total value of the transactions Ripple accounts for. Since this is a very important factor for the value of each coin I'm curious how you derived Ripple's market cap.

30
  ·  2 months ago

Lennartbedrage, this is a great article, and some fairly conservative hypothesis to keep things realistic. I suspect ripple will garner more support as time goes on. With the 55-billion xrp lockup, and while they say they'll release 1-billion per month, there is also mention that they'll burn a portion up (1000 sats perhaps?) with each transaction. So I'm unsure about the total circulated supply from the existing 38-billion, but my guess is the 1.75-trillion in revenue will be divided into a lesser number than the total 100-billion xrp which will drive the price on a per xrp token basis. My sense is the xrp token is representative of the entire ripple business irregardless whether or not the xrp backbone connector nodes between countries are used or not, although suspect their use to be in the cards in the future. Ripple just so happens to call their crypto-token...." xrp" is all. Currently it appears their focus is on the ripple consensus ledger, interledger protocol and compatibility with other ledgers (banks). Great thoughts on strategy and possible buy-in from other institutions. Future prospects to bring into consumer markets are a little further into the future - for now it's the banks. People can still be the anarcho-capitalists/libertarians and possibly still benefit based on ripples future endeavors.

26
  ·  2 months ago

Excellent article. That's why I obtain my XRP months ago as the bankers like the technology.
I transferred BTC to a XRP wallet on Gatehub.
Now that Ledger Nano S has an app for a XRP cold wallet for it has being transferred off an exchange. https://www.ledgerwallet.com/apps/ripple
Now the waiting begins (;

26
  ·  2 months ago

I like your article too. The main issue for me is that I've heard that ripple was stolen from coinpay few days ago, so there is a risk it will be taken from other wallets too?

44
  ·  2 months ago

I really appreciate this write-up...makes me feel a LOT better about going heavy near the recent top. I don't mind HODLing :)

47
  ·  2 months ago

This is THE article to read about Ripple and xrp. Thanks a lot for putting in the effort! I will share.

35
  ·  2 months ago

Historically, total anonymity online has not really ever worked in the long run. Therefore I'm counting on XPR! I think if they play it right, it will be the transaction currency that banks will actually count on.

39
  ·  2 months ago

Thank you for this informations. Gave me some insight :) followed

40
  ·  2 months ago

I followed and upvoted you. Please follow and upvote back. Thanks!

42
  ·  3 months ago

Excellent read! thanks @lennartbedrage.
As a libertarian and decentralized at heart this is obviously not the preferred way to invest. But when you look at the bigger picture, it`s very obvious that the bankers are going to use their own tech and not an decentralized one. And with the amount of money that is likely to pour into this tech the value is doomed to up.

51
  ·  last month

@lennartbedrage thanku for the deep dive into ripple... Here in my post I have tried to answer question why you should invest in ripple and forget stellar... Happy reading

https://steemit.com/cryptocurrency/@bsameep/forget-stellar-invest-in-ripple-comprehensive-review-of-two-blockchain-based-payment-companies

25
  ·  last month

I really believe in ripple's future. Boutght some xrps.. :} very nice article. :]

38
  ·  5 days ago

i bought some ripple :)

25
  ·  3 days ago

great art! Looking forward to much higher prices of XRP;)

42
  ·  22 hours ago

Great story, curious how it looks now!