What is Ripple?
The word Ripple can refer to three things. First, there’s the system, built by Ripple (the software company) which utilises blockchain technology to facilitate the transfer of goods. And secondly, there’s the actual currency, i.e., the tokens; these are called XRPs and are Ripple’s (the system’s) native currency. These are the coins themselves. So, essentially, the Ripple blockchain’s version of Bitcoins or Litecoins. And thirdly, there is, of course, the company itself which is also called Ripple. If we are referring to the company, this will be explicitly made known. But from this point on, unless otherwise specified, when we say Ripple, we’re referring to the underlying payment system, and when we say XRP we are, of course, talking about the currency; this will help avoid confusion.
This article will be more concerned with XRP than with Ripple because we want to delve into the price of the tokens themselves. We will, at times, address the nature of the system itself because, in order to gain a well-rounded understanding of XRP and what affects its price, a basic knowledge of how the coins/tokens are released, bought, and traded is essential; our goal is to gain an insight on what shapes the coin’s value, both historically and going forward. Of course, as with any currency or asset, not every surge or dip can be easily explained away. Some movements may remain a mystery; however, there are plenty of quantifiable factors which can affect a coin’s value – these will be examined in detail. Before we get into the price, let’s briefly delve into XRP itself to give us an idea of how the tokens came to be and what controls their release/flow etc.
XRP is Unique
Ripple is fairly unique in the cryptocurrency world for two reasons. One, it isn’t really decentralized, or, at least, not to the extent that Bitcoin, Ethereum, and Litecoin are decentralized because Ripple (the company) controls the lion’s share of XRP tokens (the topic of whether XRP is centralized or decentralized is the subject of plenty of hot debates, online). And two, XRP cannot be mined like other cryptocurrencies. Mining is how new Bitcoins, Ether tokens, and Litecoins (along with many other altcoins) are released into circulation. Mining involves solving complex algorithms using computers to earn digital coins. It serves two purposes: firstly, it limits the release of coins (because the mining process becomes increasingly more difficult as more coins are released), and secondly, the work of the miners is what powers the system, i.e., processes transactions and keeps the blockchain up-to-date. It’s an incredibly clever process.
Ripple: the Supply of XRP
100 billion tokens were created by Ripple (the company) when the system was first introduced back in 2012 and about half of those are currently in circulation, with Ripple retaining the other half. In theory, more XRP could be created by the company at any time, but Ripple has claimed that they don’t intend on surpassing this predetermined limit of 100 billion.
Ripple (the system) allows funds, via IOUs or actual XRP tokens, to be transferred between parties for almost no charge. There is a very small percentage-based charge for each transaction but this is only to protect the network from being spammed. The fractions of XRPs which are obtained in the form of transaction fees are promptly destroyed which, as well as protecting the network from spam, also, over time, increases the scarcity of XRP which, in turn, raises the value of XRP.
Ripple: Centralized or Decentralized?
Critics have speculated that Ripple, the company, is in control of approximately 70% of XRP. If that’s true, Ripple, the system, is certainly much more centralised than the likes of Bitcoin or Ethereum. Although this has drawn widespread criticism from the wider cryptocurrency community who, for the most part, believe cryptocurrencies should be totally decentralised, so as to avoid corruption and supply/price manipulation, there are some who believe that this is actually a good thing because it makes Ripple, the system, a more stable platform; the company has the power to control the flow of XRP which arguably protects the coin from crashes and other wild fluctuations, whether positive or negative. Because XRPs intended use is as currency, not, like with some altcoins, as an asset or investment vehicle, it is in Ripple’s interest to keep the value of XRP steady.
The Volatility of XRP
Sadly, for the system (but fortunately, for many investors!), this strategy hasn’t worked very well for Ripple. Have a glance at some XRP price graphs and you’ll see that the price of XRP, historically-speaking, has been anything but stable, particularly in the last year or so. This, like with most cryptocurrencies, is largely down to hype, coupled with uncertainty. We are, after all, still very much living in the adolescence of the cryptocurrency/blockchain era and, as such, price volatility is a market inevitability.
A Brief History of XRP
As you can see from the above graph, courtesy of CoinMarketCap, 2017 has been XRP’s best year yet by some margin. And, although XRP is prone to volatile rises and falls, if we look at its overall trajectory, it’s undeniably positive. Now, when examining the path XRP has taken, we don’t want to get bogged down in legacy data from years ago so, for the purposes of this article, we are going to focus on what XRP’s done, both price-wise and market cap-wise, in 2017 as it is this information which is mostly likely to help us gain an understanding of where the coin’s price is heading.
Here’s a chart showing the XRP‘s activity in 2017 alone:
XRP reached an all-time high in May of 2017, in price and market cap, when it topped $0.40 USD a coin, with a market cap of a frankly staggering $16 billion USD plus. Indeed, the price of XRP rose an astonishing 3,977% in the first half of 2017! This was swiftly followed by a rather steep correction, the likes of which often follow an unprecedented surge of the kind XRP experienced. However, since May’s peak, XRP has struggled to return to bullishness.
The token’s been decidedly bearish in the second half of the year, so far, but many analysts are predicting a return to form in the near future so now may be a good time to invest, although there are, of course, no guarantees when it comes to investments (particularly cryptocurrency investments!). Let’s examine some of the contributing factors which have been attributed to the spike of May and indeed the slow burn which preempted it.
XRP’s May Surge
Ripple recorded $11.06 billion USD worth of transactions in the second quarter of 2017 alone. The fact that 25 new exchanges introduced support for XRP, which now has the third largest market cap of all cryptocurrencies, behind Bitcoin and Ethereum, during this period no doubt had an effect on XRP’s surge in value. In terms of the May spike specifically, the company announced, in May, plans to structure the sale of a portion of its remaining currency. Remember, unlike almost all other cryptocurrencies, XRP cannot be mined; instead, Ripple (the company) holds the rest of the XRP tokens and, as such, is free to release/sell some or all of the remaining XRPs as and when they see fit.
Miguel Vias, Ripple’s head of XRP markets, told CNBC in June of 2017 that this sale structuring news would have been a major factor in driving up the price of XRP in May. Vias also said that Ripple are incredibly focused on international payments in a way that works with banks and payment enablers, follows regulations, and complies with tax offices in an open, above-board manner. Ripple (the company), with its native XRP currency, is the only cryptocurrency developer dedicated to providing this kind of service which, unsurprisingly, has attracted a lot of attention from investors, including some big names within the banking industry, such as Bank of America, RBC, Standard Chartered, UBS, and, in March of this year, MUFG (Japan’s largest bank!). Vias also said rather ominously, back in July, that new announcements regarding Ripple but concerning XRP specifically may be in the pipeline so watch this space, so to speak.
Vias said: “In this quarter, you will see some very interesting developments with respect to our partnership in payments, with respect to XRP in particular. What we have seen is an embracing of digital assets broadly by really established institutions. When you have folks like the [Bank of England], which did a [proof of concept] with us, as well as the Bank of Japan coming out and saying, we are considering this as legal tender at some point — when you see those developments, you can’t help but feel that we are on the right path, that interest is going to continue to grow.”
Although Vias acknowledged the volatility of the cryptocurrency market, as a whole, along with XRP specifically, he expressed his optimism about the future of both XRP and blockchain technology as a growing phenomenon within the financial sector. This sentiment is mirrored by Ripple CEO Brad Garlinghouse, who said: “Our pace [of signing new clients] has dramatically increased. I also think people are getting more comfortable with blockchain technologies. It’s no longer a science experiment. It’s not theory; it’s very real.” This all bodes well for the future of XRP which, despite its recent lull in bullishness, has had a fantastic year to date, it must be said.
The Here and Now
More recently, XRP has been showing some very positive movements which is sure to have perked Ripple investors up again. Despite the bearishness following May’s peak, XRP experienced a promising rally in August when it climbed back up to just under thirty cents a token. This was followed by another short lull but, if we look at October on the 2017 graph, the price looks like it could be fixing to break new ground once again. Obviously, nothing is ever for certain with investing and, as such, you should always exercise caution when trading (especially with cryptocurrency and especially with XRP) and never hedge more than you can afford to lose.
At press time, the Ripple/US dollar (XRP/USD) exchange rate is $0.24, up 4.24% on the day and 21.89% week-over-week. Looking at the below graph, courtesy of CoinDesk, it seems possible that XRP may be on the verge of another rally, however, there has been little news from the Ripple camp so the reasons behind these recent gains remain unclear.
Ripple will, this month, host Swell, which will be an event which, it is hoped, will bring the world’s financial leaders together so they can network and discuss various trends and strategies. Swell will go toe-to-toe with Sibos, which is the SWIFT money transfer system’s annual banking and financial conference. Tim Berners-Lee, the creator of the World Wide Web is scheduled to speak at Swell (see below for details) which is sure to attract attention from fintech enthusiasts.
As search engine hits – which Swell will no doubt boost in the case of Ripple and, by extension, XRP – have proved to be heavily correlated with cryptocurrency price activity, this could foreshadow brighter days ahead for the XRP/USD exchange rate. Still, it is of course possible that Ripple is simply trading sideways alongside the general market. Only time will tell, as they say.
Hopefully this article has given you an idea of XRP’s trajectory over the past year or so as well as opening your eyes to some of the things which affect price and either drive growth or spell doom. Although all of this is, to some degree, speculative, by paying attention to Ripple news and being active on Twitter, it is possible to get a sense of when a bullish trend may be on the horizon. XRP’s strongest asset is probably the support it, and the accompanying Ripple blockchain, has attracted from banks and financial institutions the world over. With that kind of support, both financially and ideologically, it seems unlikely that Ripple will fall flat anytime soon. So, if you’re interested in jumping on the Ripple bandwagon, keep your ears to the ground and, as always, proceed with caution.