Why XRP is terribly overvalued

8 57
Avatar for mduchow
4 years ago

XRP token and Ripple Payment Protocol are Different

Ripple is a global settlement network which allows banks to transfer money and settle international payments in different currencies. As more banks use Ripple protocol, it is becoming more valuable.

Contrary to popular belief, XRP currency is different than the Ripple protocol. XRP is a token or a native currency that works under Ripple Transaction Protocol. XRP protects the Ripple network from DDOS attacks, and prevents spam.

Do Banks really invest in XRP?

Banks do not invest, buy or hold XRP tokens.

There are banks working with Ripple company, and they may be making payments to the Ripple company per their use of the Ripple protocol.

Real Value of XRP

Certain amounts of XRP are being destroyed to cover transaction fees. Currently, the default transaction fee is 10 drops (0.00001 XRP).

As an example, only 10 XRP tokens need to be destroyed if a bank needs to settle 1 million transactions in one year.

To have a better understanding of the real value of XRP, we need to know its destruction rate.

From the inception of XRP to 2020, only 0.00867% of the entire supply has been destroyed. On the other hand, there has been no significant change on the destruction rate over time.

With this rate, we will need around 70,000 (seventy thousand) years to consume all XRPs. Sadly, none of us will live that long. In reality, it is very likely that technologies like Ripple network will be outdated and useless 1000 years from now.

In other words, it does not make any sense to invest in an asset with the assumption that it has a chance to become scarce thousands of years from now.

But... But... But... Why Did XRP Skyrocket in 2017?

To summarize:

  1. Majority of people do not understand that Ripple payment protocol and XRP are different. When a private investor invests in Ripple company, people assume that the valuation of XRP should also increase. However, XRP token's valuation and Ripple company's financial situation are irrelevant.

  2. Due to the fact that there are 100 billion XRPs created, the XRP price is low compared to other cryptocurrencies. As a result, new people who invest in cryptocurrencies ignore the market cap, and they think that XRP is very cheap and should go way higher.

  3. As Ripple company holds the majority of XRP, the amount of XRP tokens in circulation is significantly low.

  4. Since XRP price increased to unexpected levels, those who shorted XRP got liquidated and had to buy back from higher prices. These short squeezes caused the price move even higher.

  5. With the price increase, the volume also increased to astronomical levels. As such, more exchanges listed XRP.

  6. Ripple company has been doing a great job on getting their token listed on almost all major local exchanges. Local exchanges are the place where new users begin their trading activities, and it is always easy to attract those newcomers by announcing partnerships with banks.

  7. An important portion of the XRP circulating supply is restricted, which means most of the XRPs reported as circulating can not be moved. As a result, XRP market cap has been wildly overstated and does not reflect the truth. This overstated market cap has undoubtedly led many institutional investors to invest in XRP.

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$ 1.00
$ 1.00 from @molecular
Avatar for mduchow
4 years ago

Comments

great summary, thanks

especially liked the part about why xrp skyrocketed

btw: you just triggered me to sell the rest of those 65000 xrp I once received just for having a Bitcoin talk account back in the early days of ripple. no need to keep gas for 6500 bank-years worth of transactions around

$ 0.10
4 years ago

Hahaha I'm happy I could facilitate with that. I seriously appreciate the comment and the tip as well! There's so many people schilling this coin out there and I haven't seen many, if any at all, posts showing the contrary. Plus the community backing the coin is so ungodly tribalistic so it feels good to potentially sow doubt within them haha

$ 0.00
4 years ago

[Removed comment]

$ 0.00
4 years ago

The only way I can explain how something like XRP is allowed to happen is by receiving special assistant from the authorities in exchange for promoting the idea of "centralized cryptos".

$ 0.00
4 years ago

Totally agree. I share the same suspicions regarding some American based exchanges as well as centralized/localized exchanges like Coinbase. While they prove useful for onboarding new investors, I'm not overly comfortable with someone like that having access to my data. Even companies like VISA entering the space leaves a bad taste in my mouth. Although it was expected, as these markets grow in popularity, it seems like they are becoming increasingly more centralized. Newcomers won't understand it or realize it, but the susceptibility seems to stem from companies like Ripple trying to enter the space- even some elements of it seem to present in networks like ETH but at least they have smart contracts to serve as a good separation. But the fact that people get excited and think it's a good thing to see coins trying to partner with banks is beyond me and is the proof that this new, "freshman class" for simplicity, has little to no idea what blockchain has been and why it became valuable.

$ 0.00
4 years ago

I do not think that ripple will gain great value, but in the future it is widely used especially in the banking system, it is an asset that does not disappear thanks to its low commission and fast transaction speed.

$ 0.00
4 years ago

Most definitely. The network has utility and that's undeniable. The company backing it on the other hand, is either employing shady business tactics by schilling what is essentially a useless utility token to unsuspecting onboarding investors. Or they are complete morons. Either way they are deepening their pockets while their investors get nothing. But I totally agree Ripple network as well as Stellar network have enormous applicability. Their only shortcoming is that the coins are complete shite

$ 0.05
4 years ago