Ripple’s Triple Gives New Hope To Cryptocurrency Investors.
What Is Ripple?
Once believed to be the “Great Cryptocurrency Hope” that might dethrone Bitcoin (BTC), Ripple (XRP) surged to a $3.25/coin price last January only to then lose nearly 95% of its value by early September, 2018 at 23 cents. In the last week, XRP tripled to more than $.60 to BRIEFLY surpass Ethereum (ETH) as the second most highly valued cryptocurrency. It is currently number 3 again, with a market capitalization of $22 Billion to Ethereum’s $24 Billion.
The reasons for the sudden jump are not entirely clear. Theories range from new developments at the company, to literally “Fear Of Missing Out” (https://cointelegraph.com/news/from-adoption-to-fomo-reasons-behind-ripples-leap). There is also the continual misconception that Ripple and XRP are the same. They are not. Ripple Labs is a privately held company who has developed the “currency” to facilitate lower cost and international transactions but the company, and the coin, are entirely separate entities.
Ripple’s website https://ripple.com/ gives a fairly good explanation of XRP, which is more like PayPal or Venmo than Bitcoin. XRP is not entirely a cryptocurrency from the standpoint of overtaking the entire World and Banking System. It actually works “within” the existing financial system in order to expand capabilities and reduce the cost of electronic, global transactions through Ripplenet. It is used by existing electronic transfer platforms such as MoneyGram and Western Union. Transaction speed and costs are both superior to Ethereum’s and vastly superior to Bitcoin’s (https://www.businessinsider.com/ripple-link-xrp-explained-2018-3).
What is not clear, and absent from the equation, is how a holder of XRP derives any value at all. It is not a company, it does not pay dividends, and it has no assets.
XRP’s Correlation To The Cryptocurrency Sector Has Changed!
You may recall our piece entitled “Inflection Point: (Part 3); The Ultimate Cryptocurrency Surprise (https://markonomics101.com/2018/07/17/inflection-point-part-3-the-ultimate-cryptocurrency-surprise/), in which we noted the extraordinary amount of correlation amongst all issues. Cryptocurrencies, individually and as a group, had a tendency to rise or fall in nearly identical percentages. This type of behavior is suggestive of an inability by the investor community to differentiate the winners from the losers and to even assess any notion of relative value. Bitcoin, as we noted NEARLY A FULL YEAR AGO in “Bitcoin or Bustcoin?” (https://markonomics101.com/2017/12/21/bitcoin-or-bustcoin/) is beset by a number of fatal flaws. At the time, BTC was just past its ultimately high value of $20,000.
The recent sharp spike in XRP is a clear departure from the trading pattern that has been in place all year. While the charts for the other major cryptocurrencies continue to look nearly identical, Ripple, in temporarily overtaking Ethereum, has departed from the group.
According to Coin Market Cap https://coinmarketcap.com/charts/, the Total Market Capitalization of the Cryptocurrency Sector touched a low of $190 Billion on September 11th, 2018. The current total market capitalization stands at $225 Billion, a modest rebound of $35 Billion. The increase in XRP makes up about 40% of this jump. The vast majority of the other currencies have had modest gains of 10% or so.
Cryptocurrencies Overdue For A Bear Market Rally.
As you can gather from the charts above, the major players are all tracing out Descending Wedge Patterns and their price actions have been somewhat stable. Even in the worst Bear Market or Bursting Asset Bubbles, sharp but short-lived rallies are common. In percentage terms, the greatest Bull Market in Stocks occurred during the Great Depression after the Crash of 1929. This would be a very reasonable expectation here behind the “Ripple news”, (in carrying 40% of the recent upward move for the sector), which at least gives some credence to its usefulness in electronic transactions. A reason to own Ripple Labs, perhaps, but not XRP.
Ripple is still many generations behind credit card processor VISA or Mastercard while it is the most efficient among the cryptocurrencies.
Keep this in mind. VISA is a profitable company which generates profits and dividends. XRP has no direct tie back to Ripple Labs. If value is ultimately created, it will be to the benefit of Ripple Labs’ shareholders, NOT to holders of XRP. Holders of XRP will have to seek solace in the fact the company is speeding up global electronic payments as their XRP “returns”. In all likelihood, the value of XRP will remain nominal, along with the entire Cryptocurrency Sector. https://www.valuewalk.com/2018/01/transactions-speeds-cryptocurrencies-stack-visa-paypal/
If the speed and minimal cost at which XRP processes transactions represents a “competitive value” in the Cryptocurrency Sector, (to companies such as MoneyGram and Western Union), it could develop a niche but its “value” is not yet determinable and could be nominal. The triple in Ripple may be fleeting. The market place is still without a solid and compelling financially-based valuation metric for anything like XRP. A Triple in Ripple would likely be Home Run for Ripple Labs.