While Ripple (CCC:XRP) cryptocurrency has been laudable and has done a lot to validate altcoins and the decentralization of finance, it’s in trouble. The company’s ability to reduce the complexity and time in the payments system is good. It is a positive step in legitimizing the promise of DeFi: Reduce the problematic and archaic aspects of financial systems and bring them up to speed with our world. Because there are clearly inefficiencies within the financial systems. None of you reading this will need to be reminded of how cumbersome it can be to conduct simple business in banks.
Thus, XRP has done well to eliminate pre-funding requirements in international payments and increase the overall openness of markets. Ripple refers to this as on-demand liquidity, and it has significantly reduced time and cost in payments.
However, recent events indicate, at least to me, that Ripple is worried about its ability to remain long-term viable in the payment space.
And it should be, because other actors are watching Ripple and have spent the interim perfecting their own strategies in the payments space.
Seemingly Failed Airdrop
Ripple recently undertook an ‘airdrop’ in which the Flare Network introduced XRP cryptocurrency onto the Ethereum smart contract blockchain. XRP coin holders were airdropped Spark tokens, the native currency of the Flare Network.
Per Ripple CTO David Schwartz “It is fantastic to see companies building systems that add utility to XRP and I think the ability to use XRP directly in smart contracts is going to be tremendously usefulIt is fantastic to see companies building systems that add utility to XRP and I think the ability to use XRP directly in smart contracts is going to be tremendously useful,”
Perhaps ultimately this will raise the price of XRP. Ostensibly it should if this opens up new utility for the altcoin. Yet following the Dec. 12 airdrop XRP prices have remained volatile but haven’t risen.
Ripple has proven its utility in partnering with big name financial institutions which utilize its payments products. The more tangible results any DeFi product produces, the better for the entire cryptocurrency ecosystem. And when a cryptocurrency or DeFi project takes aim at any legacy financial product, said legacy product isn’t going to simply roll over.
Payment Player Viability
I’ve mentioned that XRP and Ripple have made strides in decluttering the payments system. But at the same time, those legacy players are going to fight back. The cross-border settlements space is dominated by The Society for Worldwide Interbank Financial Telecommunication. We all know it by its SWIFT acronym.
XRP and Ripple reduced the cross-border settlement time down to 3-5 seconds. That was an incredible reduction in speed as SWIFT transactions took 1-5 days to settle.
A Swifter SWIFT
But even by last year SWIFT had begun to approach XRP speeds in a cross-border settlement between Australia and Singapore.(1) That transaction occurred in 13 seconds.
If SWIFT can replicate that speed across markets while keeping costs similar to those of XRP consumers may not care about the 8-10 second difference between XRP and SWIFT. In all likelihood SWIFT will bring that transfer time down soon if it hasn’t already.
The point here is simple. Many DeFi products are simply going to provide impetus for legacy players (like SWIFT) to get with the times. My feeling is that a great majority of these legacy players in the financial systems will be pressured by DeFi players and simply improve their system as a result of that pressure. Consumers aren’t necessarily interested in cryptocurrency as much as they are interested in efficiency.
Central Bank Digital Currencies
A central tenet of the digital currency/cryptocurrency movement is that traditional fiat currencies derive their value partially from the say-so of the issuing central bank. Therefore, the central banks should have little incentive to usher in cryptos. In fact, they should be very much in opposition to them.
Yet, according to this article in The Economist, more than 80% of central banks are studying issuing digital currencies of their own. Partly because they want to retain control, partly to study the broad implications, and partly to satisfy public demand.
Ultimately Ripple and XRP have massive competitive forces directed against them in SWIFT and central banks. This doesn’t even mention other cryptos which could also supplant XRP.
XRP is the third largest cryptocurrency by market capitalization. Yet, it hasn’t even eclipsed the psychological barrier of a $1 share price. In fact, it has simply been wildly volatile and well below $1. XRP price predictions (well summarized here) run the gamut from stagnation to wild increases.
It’s very difficult to ascertain values of cryptocurrencies because so little is known. Stock valuation is many times more reliable and understood, yet it remains notably imprecise. Given that Ripple hasn’t proven much price-wise, I can’t see any reason to buy it other than to gamble. Share prices remain around 50 to 60 cents, so you could throw a few hundred dollars at it and just hold on to those few hundred shares for fun. But I don’t see any value more than that.
On the date of publication, Alex Sirois did not have (either directly or indirectly) any positions in the securities mentioned in this article.