Ripple — XRP — Fundamental Analysis
Any fundamental analysis is based on figures and on the author’s subjective opinion about the technology and people involved in creation and dissemination of knowledge and innovations needed to implement optimal solutions to fundamental problems. The Ripple team has, as accurately as possible, streamlined the development strategy and identified the fundamental problem that they want to solve through blockchain technology for the banking sector.
Time is the main value offered by Ripple, since SWIFT transfers to bank accounts of individuals and corporate entities can take up to 5 business days. From my own experience, I can say that transfers to Europe, USA, Russia, China and Japan take 1–3 days. Another feature of SWIFT is the high commissions involved. The more intermediary banks participate in your SWIFT transfer, the higher the fee you pay. At this stage, we could end a review of the SWIFT system. However, there is need to pay attention to the shortcoming of this system in remote (less developed) parts of the world. Presently, those wishing to send transfers to banks in Africa might encounter difficulties. A transfer might take up to 5–6 weeks, or might even get lost due to an error by the intermediary bank. Here is one of such examples.
The Ripple (XRP) cryptocurrency is a digital token for instant payments. It is also a store of value if one looks very far into the future. So that’s a brief description of everything that is known about the Ripple cryptocurrency. I’m not going to describe the history of how Ripple was created. Wikipedia can help out with that. Nevertheless, it would be reasonable to note an important detail — not all products powered by the Ripple blockchain work together with the XRP token. Therefore, let’s deal with everything one after the other.
SOFT
Let’s begin with the main existing and working product xCurrent. At present, customers (banks) use this very counterpart of SWIFT, since it is truly faster than its competitor. xCurrent builds the shortest chain of intermediary banks. Just like SWIFT, it also withholds the required amounts on correspondent accounts of the entire chain and records who is being owed and who is owing in a ledger tech.
In fact, xCurrent does the same thing as SWIFT, but automatically and quickly. Its final result is recorded in a private blockchain visible to all participating banks.
xVia is an interface, or simply an “application” that allows you to access RippleNet. Instead of a thousand words, I suggest you watch the video of xVia.
xRapid provides the key to increasing XRP liquidity. As you know, some states do not allow banks to deal in cryptocurrency transactions. With this software product, banks are able to quickly and cheaply execute cross-border transactions without pre-funding accounts (XRP). This is a safe solution for progressive banks and financial institutions seeking to use advanced customer service technologies with companies that create and develop these technologies. Besides, xCurrent saves up to 30–40% in comparison with SWIFT, while xRapid can reduce costs by up to 40–70%. Do you feel the benefits?
So here is how it works:
Certainly, this solution would allow you to scale the network and use XRP tokens. Though you need to understand that deploying (when every 10 bank/FI will work with xRapid) this technology would take several years until it starts working in many financial institutions in US and Europe. As you can see, the above software uses the RippleNet network, but practically does not use the XRP token other than xRapid. This leads to the logical question of what benefits will an investor get when buying the Ripple cryptocurrency.
Analytics
It is possible that Ripple is positioning its tokens as an interaction between shares of a public company and cryptocurrency that can be used as a means of payment. Here, you can draw a parallel with a state that sells its currency on the open market, while the value of this currency depends on such factors as interest rates, inflation, political stability and others.
It is important to understand that the success of any enterprise depends on the people involved in it. If the team or company has an asset such as a share (for example, an XRP token in our case), a part of its value directly depends on the company’s efficient operation. The market instantly reacts to the performance of the company/team. In addition, the XRP token is another marketing engine. The XRP price and the success of Ripple as a company are being discussed at every corner. Does this remind us about anything, Apple, Amazon, Tesla?
We can say that the cost of XRP from 2012 to 2017 mainly depended on expectations of high cryptocurrency prices that were rising in the long term. At the moment when the market has cooled down, XRP price should be divided into two components: the fair value of business and the speculative component. If we exclude the speculative component, then the token price should roughly be equal to the fair value of Ripple Labs Inc. per XRP.
Ripple can be categorized as a SaaS (Software as a service) enterprise. So one first needs to evaluate customer acquisition costs (CAC) and customer lifetime value (LTV). CAC and LTV tell us how effectively the company monetizes its customers. Unfortunately, the company does not disclose the following information:
- Cost of attracting customers;
- Time it takes to receive expected profit from a customer;
- Exact number of customers;
- How much the company earned on its software sales.
Therefore, it is not expedient to make any calculations since the result will be critically different from the present one. All we know is that the approximate number of customers is more than 100 and the one-time cost of deploying RippleNet is about $10 mln. (source). This means software sales have earned Ripple over $1 bln. But the statistics on token sales revenue can be interpreted differently.
In particular, the huge sale of tokens on the OTC market in Q3 and Q4 2017 and Q1 2018 (according to the “Programmatic sales” field, it is $32.6 mln., $71 mln. and $151 mln respectively) was not only due to the overheated market, but also due to the increase in the cost of recruiting new specialists or the cost of marketing to attract customers to the xCurrent platform — it was in Q3 2017 that xCurrent, xRapid, and xVia were presented, and in early 2018, official reports indicating the emergence of the first customers and application of xCurrent and RippleNet platforms were released. Such a positive signal became the main driver for institutional investors, who continued to invest in Ripple. This can be judged by of Q3 2018 indicators, which showed record token sales worth $96 mln.
Liquidity
Liquidity is the readiness, and most importantly, the speed with which digital assets can be converted into cash. In today’s world, one cannot just walk into a shop to buy products using gold, although gold is still considered the second most liquid asset in the world. Therefore you go to a pawnshop, collect cash, pay for food or goods. The same principle applies with cryptocurrency. There are exchanges and traders ready to buy assets at market rates, i.e. a quite time-consuming process for an average citizen.
The liquidity of any cryptocurrency is a reflection of its financial stability. But for XRP, liquidity is one of the key points that are worth focusing on. Customers (banks) need fast and stable access to exchanges (the more the exchanges are, the better). It is only then that converting a digital asset into cash in a short time will be possible, thereby avoiding speculation and sharp price increases in the market. Besides, each exchange has its own market maker, which provides liquidity to other market participants (ordinary traders) at reasonable prices.
As a matter of fact, MM smooths out strong price fluctuations most of the time. So if you have enough funds (from $5 mln.), you can become an MM yourself and make money on spread (difference between sell price and buy price). You can also buy or sell a controlled asset to make profit like any other trader. Of course, apart from the ample money-making opportunities, MM has a number of limitations in its activities, since its main goal is still to maintain liquidity and orderliness in the market.
Technical analysis
My TA is based on moving averages, on RSI and MACD indicators. Of course, one needs to remember that no indicator is perfect, so I use them as an addition to the EMA lines.
The XRP/BTC chart can give us an idea of the current trend movement. Then it will be easier for us to understand where it is best to open a long position. We will not consider hourly and daily charts, but will go straight to 1-Week TF.
At the moment, price is slowly sliding over the 30EMA line. The first line of defense is also supported by the 100EMA line, which indicates a stable uptrend. The RSI indicator, together with MACD, confirms the bullish mood of the market. So we see RSI at 56.8, which is above 50 (the generally accepted value) and below 80 (the oversold level). In turn, MACD moves steadily above the central line, without sharp dips, but if things continue like this(sluggish), we’ll see a bearish crossover, that is not good.
Monthly chart — we have price support from the 7EMA line and additional support for 6600 sats on the 30EMA line. The MACD indicator made a bullish crossover with its signal line, while RSI is at 54, adding confidence in the positive trend movement.
Note that on the charts, price does not encounter any resistance. So slippage, sharp jumps and higher volatility are possible.
The XRP/USD picture is slightly different. Bitcoin price makes its own adjustments. Let’s look at the weekly chart. The situation here is less rosy. Over and over again, the 30EMA resistance line has been cooling all attempts of the market to break through and gain a foothold above $0.5 for XRP, starting from July 18. In addition, another 100EMA resistance line was added at $0.43 in early December. Everything seems to suggest that the price might fall even lower and test the 200EMA support line — that’s about $0.23 per token.
Conclusion:
Buy from support levels 5k/6.5k/7.9k sats on XRP/BTC.*
Buy below $0.24 for XRP/USD.*
Competitors and Risks.
- SWIFT gpi — a platform for cross-border payments.
- Quorum blockchain platform from JPMorgan Chase;
- IBM Blockchain World Wire.
The success of small companies depends on their flexibility and ability to quickly restructure in the right direction. This cannot be said of companies with years of experience in the market, companies that have proven their high reputation but are technically outdated. One of such companies is the sluggish SWIFT– any constructive proposal goes through a long hierarchical chain before it gets to the table of a top-level executive. This drags the development process for years and it is a huge disadvantage. The advantages are more: customer base, professional team of developers, constant funding, etc.
Very little is known about the SWIFT gpi platform. Among the banks testing the pilot version are Bank of America Merrill Lynch, Bank of China, Barclays, BBVA, BNP Paribas, Citi, Deutsche Bank, E.SUN Commercial Bank, ICBC, JP Morgan, National Australia Bank, Piraeus Bank, Societe Generale and Wells Fargo. It is expected that after successful trial, this system will be deployed in 10,000 Swiss financial institutions. One could say that SWIFT gpi is only a gradual upgrade of their payment messaging system. In actual fact, it provides banks with instructions, which are then executed on a deferred basis. The confrontation between SWIFT and Ripple has already begun. These companies will have to prove to their customers that only one of them deserves to be an international banking standard.
Launched in 2016, JPMorgan Chase’s Quorum project is developing its own blockchain. The platform is expected to improve efficiency of certain banking operations, such as clearing, derivatives transactions, and cross-border payments. Making premature conclusions is still early. However, SWIFT is a long-established company with thousands of customers. Ripple is perfectly developing a new market. So Quorum may never find access to the global scene.
Tech giant IBM and Stellar have jointly developed their own international payment system IBM Blockchain World Wire, which will be a rival to RippleNet and SWIFT gpi. In our next analytic review on Stellar, we will be discussing what steps IBM will take. The competition is not very pronounced yet, since there are still a lot of customers out there. Several companies selling services of similar capabilities not only do not interfere with each other, but also they help to form a new services market.
The potential of SaaS companies is fraught with a fairly high level of risk, in addition to competition. Growth slowdown, customer attrition, software crashes and more other factors can trigger a collapse in digital asset price. Moreover, cryptocurrency transactions carry high risks due to sharp exchange rate fluctuations. Therefore, if you are not ready for this, you should refrain from investing in such projects.
Concluding remarks
The SaaS services market in the crypto economy is still in its initial stage of formation. Nevertheless, it is worth noting that the market has a growing maturity, as evidenced by the rapid influx of new customers and the interest of institutional investors in Ripple technologies. This is a very important indicator for companies and the industry as a whole, because these are the assets that major investors want in their portfolios. And this is only the beginning. According to official statistics from FDIC.gov and NCUA.gov, there are more than 12,000 banks and credit unions in the United States. So you can only imagine the growth potential for Ripple.
It is crystal clear that the cost of XRP tokens is directly dependent on the success of Ripple, on deployment of software in the banking infrastructure and on the sale of tokens by Ripple subsidiary company XRP II, LLC, which owns 50+ bln. Xrp in assets. At the moment, the company has shown its professional suitability, finished product and a huge interest from investors.
CoinSore Rating: Outperform (Moderate buy)
Personally, I haven’t traded Ripple and before you want to buy XRP or any cryptocurrency, my financial advice is, do your own research and don’t invest more than you can afford to lose!
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