How Rich Would You Be If You Had Invested US$10,000 In Ripple A Year Ago?
The price of Ripple’s XRP cryptocurrency has shot up around 29,000% over the past year.
Published on 17 January 2018
Of the hundreds of cryptocurrencies in existence today, bitcoin is by far the most popular. In fact, bitcoin is almost a household name now. The digital coin’s mesmerising, meteoric rise last year – skyrocketing over 1,400%, from about US$1,000 in January to around US$15,000 by the end of 2017 – ensured that it gained global recognition.
But another virtual currency, ripple (also known as XRP), has actually seen an even greater surge in price over the same time period. One XRP was valued at US$0.006368 on 1 January 2017 and, as of 15 January 2018, its price had soared to US$1.86 – marking a 292-fold increase in a little over a year. In the same period, bitcoin appreciated by a comparatively paltry factor of 14.
What is ripple and why has its price shot up so dramatically over the past year?
The cryptocurrency was developed by Ripple, a fintech firm headquartered in San Francisco, and released in 2012. The company’s primary objective is to provide a better way to facilitate global financial transactions.
Currently, most cross-border interbank transactions are completed using the SWIFT network. The Society for Worldwide Interbank Financial Telecommunications (SWIFT) has over 10,000 member institutions. An international payment sent using the SWIFT network, which was established in 1974, take about three days.
Using Ripple’s blockchain technology, a cross-border payment can be completed in a few seconds. In addition to making transactions much faster, RippleNet, the firm’s enterprise blockchain, is cheaper as well. According to the company, banks can save up to 60% on an average, if they switch over from SWIFT.
Ripple has already partnered with over 100 financial institutions. The list includes banks, payments providers, and credit card companies.
The system that transfers money across borders uses Ripple’s cryptocurrency, XRP.
American Express (Amex), a large US-based financial services company, has recently tied up with Ripple. The fintech firm provides Amex customers with real-time payment facilities for transferring funds from the US to Britain. Currently, Amex uses Ripple’s blockchain technology for its US corporate customers’ payments to UK businesses that bank with Santander UK, the British subsidiary of the Spanish Santander group.
Brad Garlinghouse, Ripple’s chief executive, says, “There are a lot of blockchain tourists out there who are kicking the tyres, but we are well beyond that.”
The firm’s list of customers includes Crédit Agricole, one of the leading banks in France, Uruguay’s dLocal, and Bexs Banco of Brazil.
At the end of last year, three large Japanese credit card companies announced that they would begin using Ripple’s technology. Additionally, the Japan Bank Consortium, a group of 61 Japanese banks, has started a pilot project in coordination with two leading Korean banks, Woori Bank and Shinhan Bank. The pilot will use Ripple’s settlement system to transfer funds between Japan and Korea.
Last week, Ripple announced a partnership with MoneyGram to facilitate payments using XRP, which Garlinghouse said will enable the US money transfer giant to “move money as quickly as information.”
Unlike bitcoin, which has to be “mined,” XRP is issued by Ripple. The company has created 100 billion ripple coins and put approximately 38 billion in circulation. The remaining coins have been retained by the company.
Additionally, one billion coins can be released every month. With each XRP currently trading at US$1.86, the market capitalisation of the 38.739 billion XRP in circulation is US$72 billion. That’s significantly less than bitcoin’s market cap of around US$230 billion, but XRP is catching up fast.
The following chart shows the rate at which XRP has appreciated over the last ten months:
Is ripple’s price rise justified? There are several reasons for the interest that speculators and investors are showing in the virtual currency. Firstly, ripple’s technology has been seen to have practical usage in the real world. Over a hundred financial institutions have adopted RippleNet, and this list includes some of the world’s leading banks.
The company’s product has been accepted by financial institutions in the US, Asia, Europe, and South America. Trevor Koverko, CEO of Polymath, a blockchain platform for securities says, “People feel comfortable with its name and the technology behind ripple. A lot of people are beginning to realise how big an opportunity there is between business and the blockchain… and that’s making ripple the early winner here.”
Another reason for the price of XRP shooting up is that it had been rumoured that it would soon start trading on the Coinbase platform. Currently, Coinbase allows only bitcoin, Ethereum, Litecoin, and Bitcoin Cash. However, when Coinbase said that it did not have any plans to include ripple, the cryptocurrency’s prices tumbled from a high of US$3.20 – which it hit in early 2018 – to its current level.
According to a recent report in Forbes, Chris Larsen, who was formerly Ripple’s CEO, owns 5.19 billion XRP. At a valuation of US$1.86 per XRP that makes his holdings worth US$9.7 billion. He also owns 17% of the company.
The company itself owns 61.3 billion XRP. That translates into a mind-boggling US$114 billion.
Of course, all these figures assume that XRP’s valuations hold up.
What does Ripple plan to do with its immense wealth? In October, when Ripple’s XRP was valued at US$15 billion, Garlinghouse explained that the firm planned to use this amount to “ensure that we continue to advance.” The funds from the sale of XRP could be used to acquire other companies or finance Ripple’s growing business operations.
Ripple has successfully adapted blockchain technology to create a highly efficient and economical cross-border payment service. However, there is no way to determine whether its business model justifies the astronomical valuations that its cryptocurrency has achieved.
Will the price of XRP keep moving upwards? Or will it crash? While it’s impossible to answer these questions with any degree of certainty, there is one characteristic that XRP will probably continue to exhibit: its price will remain highly volatile – regularly experiencing swings of 30%, 40%, and 50% or even more. Ripple is definitely not an investment option for the faint-hearted.