Long-Term Bullish Case for Ripple (XRP)

Ripple (XRP/USD) may be up by over 10% year-to-date but it is a laggard compared to its large-cap peers such as Bitcoin (BTC/USD) and Ethereum (ETH/USD). Nevertheless, Ripple is making major progress behind the curtains. The company has been signing up financial institutions at a rapid rate, plus they’ve been staging technological developments that position the company to take over global payments. This is our long-term bullish case for Ripple.

Ripple Quietly Amassing RippleNet Customers

Ripple has positioned itself as one of the major cryptocurrencies designed to facilitate the transfer of value at an enterprise level. In other words, Ripple’s target market includes banks, large companies, and large payment centers. Ripple seeks to create a global network that provides liquidity to transfer cross-border payments.

With our current banking system, a cross-border transaction can take anywhere from two to four days even if you send money electronically via PayPal. In fact, in many cases, the recipient can get their funds faster if you physically send a payment using FedEx. With the technology that we have today, this is unacceptable.

To this end, Ripple is creating a global network of financial institutions to disrupt the $2.58 trillion cross-border payment industry. And, companies such as Moneygram, Standard Chartered, American Express, and SBI Remit have signed up with gusto.

XRP customers
Some of Ripple’s most prominent customers | Source: Ripple

They’re doing so because Ripple offers the following features:

1. Instantaneous Transactions

RippleNet can facilitate the transfer of payments in as little as four seconds. Ethereum has a 2-minute transfer speed while Bitcoin can take hours to process transactions.

Ripple transfer speed
Ripple’s fast transfer speed | Source: Ripple

2. Scaleable

Ripple can manage 1,500 transactions per second (TPS), 24 hours a day, seven days a week. It can even scale up to compete against Visa’s throughput of 50,000 TPS.

As of January 2019, Ripple has signed-up over 200 customers to RippleNet. The more customers interacting with the network, the more efficient RippleNet becomes. That’s because RippleNet is designed to provide a frictionless experience to make borderless payments. Let’s look at an example.

If Alice wants to transfer 100 million dollars to Bob who needs Yen in Japan, RippleNet needs to solve two problems. First, source liquidity for such a massive amount. Second, convert the USD to JPY. What RippleNet will do is first convert the 100 million in XRP by tapping its global network of over 200 customers to provide liquidity. The XRP will then be transferred to Ripple partners who would then convert the cryptocurrency to Yen for Bob.

XRP acts as the mediator of the exchange. The commission for the service is negligible. The minimum transaction cost for using the network is 0.0001 XRP, which the current avg fee is 0.0006 XRP. Also, there’s a commission involved for converting fiat currencies or cryptocurrencies but it is also negligible at $0.00001.

In the short and medium-term, the demand of the growing RippleNet partners can tide over the value of XRP. This puts Ripple in a stable position as it prepares for its revolutionary Internetledger Protocol (ILP).

The Internetledger Protocol Poised to Take Over Cross-Border Payments

The ILP is the brainchild of Ripple employees Evan Schwartz and Stefan Thomas. It is a decentralized application where users can purchase and transfer currencies in fiat or crypto without being hindered by a certain blockchain network. The ILP seeks to establish a global network for transacting value free from any company, currency, digital token, or blockchain. In other words, it enables users to conduct transactions on any blockchain or currency of their choice.

For instance, if Alice wants to trade her BTC for ETH and Bob wants to trade his ETH for BTC, the ILP can make this trade possible and with a guarantee that the cryptocurrency will not be stolen or lost in the process. Transfers can also be made from a cryptocurrency to fiat or fiat to another fiat.

ILP illustrated
Illustration of how the ILP process the transfer of value

As mentioned, the ILP is independent of any entity or currency. So how does it benefit XRP’s price over the long-term?

One way is that it can spark mass adoption. People can easily convert their fiat into crypto without having to log in to a centralized exchange. Though Ripple has yet to make it official, it is probable that XRP will be used as gas to facilitate transactions.

Another and the more important reason is that XRP is one of the fastest, if not the fastest, asset that can settle payments. For instance, if you want to send someone money from PayPal to Moneygram, the process can take several days if you use fiat currency such as the USD as the payment mediator. With the ILP, it can access the ledgers of both Moneygram and PayPal. You can then use XRP as the mediator to settle transactions (as described above) in mere seconds.

Imagine big financial institutions and millions of people exploiting the features of the ILP. This is how the demand for XRP can meteorically rise in the next few years.

Bottom Line

XRP may be a laggard but it is actively signing up clients while preparing for the ILP. With a decentralized app that can facilitate the transfer of value in an instant, we see demand for XRP exponentially rising in the next few years. This is our long-term bullish case for Ripple.

 

Disclaimer: The writer owns bitcoin, Ethereum, and other cryptocurrencies. He holds investment positions in the coins but does not engage in short-term or day-trading.

Featured image courtesy of Shutterstock.

Kiril is a CFA Charterholder and financial professional with 5+ years of experience in financial writing, analysis and product ownership. He has passed all three CFA exams on first attempt and has a bachelor's degree with a specialty in finance. Kiril’s current focus is on cryptocurrencies and funds, as he does his own crypto research and is a Product Manager at Mitre Media. He also has his personal website, InvestorAcademy.org where he teaches people about the basics of investing. His ultimate goal is to help people with limited knowledge of finance and investments to create investment portfolios easily, and in line with their unique circumstances.