Intro Disclaimer: Any views expressed here are the personal views of the author and should not form the basis for making investment decisions, nor be construed as a recommendation or advice to engage in investment transactions. Please do your own research.
XRP: A Tale of Two Assets
Before diving into XRP, I'd like to highlight that:
1) The cryptocurrency market is still highly inefficient, mainly driven by information asymmetry. This can lead to the mispricing of digital assets.
2) Khelp takes a fundamental approach to digital asset investing; opinions of XRP are driven by data and may be contrarian to that of readers.
Introduction
After a years-long battle with the U.S Securities and Exchange Commission ("SEC") and hundreds of millions wasted on legal fees, Ripple, the company famously behind the XRP Ledger and its corresponding cryptocurrency, XRP, is once again, trending.
Yet, there's more to XRP than first meets the eye, as the once coined "Crypto Zombie" (shoutout Forbes) has become a notorious tale of two assets. Retail loves it. Native crypto hates it.
Why is that a good thing? What on earth is Ripple? and "Why isn't XRP in my portfolio?"
In this short opinion piece, we examine XRP's positive-price feedback loop and hefty aspirations of replacing SWIFT, while considering XRP's upfront competitive challenges and concerning network fundamentals.
So XRP is trending.
Why is That a Good Thing?
Perception is currently a reality. XRP is now the 3rd largest cryptocurrency in the world by market capitalization, flipping the highly performant, alternative smart-contracts platform, (#5) Solana and more recently the largest stablecoin, (#4) USDT. XRP is currently boasting a $145 billion market value ($254 billion fully-diluted) and is one of the best performing large-cap crypto assets of the past month, up ~400% in 7 days.
Whether it be Gary Gensler's announced departure from the Securities and Exchange Commission or Trump's proposed elimination of capital gains tax on tokens issued by American-based crypto companies, the retail army of XRP investors has officially awoke. And from the likes of WallStreetBets to the front-desk of my local autobody shop, there is quite the retail chatter of XRP.
And as we've seen before, cryptocurrencies can often be reflexive, meaning positive price movements upwards, which XRP had no shortages of this past month, can enhance the perception of an asset and further drive adoption.
I.e. appreciation and attention attracts new users, who begin to transact on the network, improving fundamentals.
It's not surprising that on the day XRP hits its highest price point in 6 years, XRP's block explorer records its highest number of all-time active accounts of 105k.
Despite popular belief, 105k active addresses is a HUGE red flag.
To put it in perspective, take a look at daily active addresses of comparable layer-1 blockchains:
Daily Active Addresses by Blockchain (Dec 1 Snapshot)
So What on Earth is Ripple? How Is It Different than XRP?
At a high-level, Ripple is a for-profit company. The XRP Ledger is a blockchain. XRP is a cryptocurrency that underpins and supports the blockchain.
The XRP Ledger was built in 2011 by Jed McCaleb, Arthur Britto, and David Schwartz.
A year after the XRP Ledger was constructed, Jed, Arthur, and Chris Larsen started Ripple (formerly OpenCoin) and gifted 80 billion XRP to the company in exchange for further developing the XRP Ledger. The company would then go on to raise additional revenue through XRP token sales to investors.
Note: The equity of Ripple and the XRP token are two, distinctly different assets.
Ripple (the company) offers an array of digital asset banking and business solutions, focused mainly around payments, custody, and now, stablecoins. Ripple enables businesses and financial institutions to transact on-chain, using the XRP Ledger. The company has also deployed over $600 million across 70+ direct investments and 10+ limited partner investments since 2015 to support companies and fund managers developing Web3.0 solutions and its ecosystem. See here for more info on Ripple's customer base.
Subsequently, Ripple's XRP Ledger aims to facilitate the exchange of value across international borders between varying fiat currencies, using XRP as an intermediate layer for liquidity and settlement. i.e. a user sends money from Japan (Yen)--> XRP --> Switzerland (CHF). In this instance, XRP serves as both the intermediary currency and the asset used to charge a transaction fee of .00001 XRP, which can increase/decrease based on network load.
Like most other Layer 1 coins, network activity drives the demand of the underlying asset, in this instance, XRP. But unlike other Layer 1 coins, XRP currently has little usage, indicative of its total fees count.
Except for a few outlier days, the XRP Ledger is generating < $10k a day in total fees.
By comparison, look at XRP's competitive universe:
Daily Transaction Fees in $ (Dec 1 Snapshot)
Another red flag.
But what about on-chain payment volume? Less users, more institutions, larger payment sizes. That's where XRP should accel, right?....
Just under ~$2.5 billion a day in transfer volume does not bode well against XRP's L1 competition. Solana, Tron, Base and Ethereum are all indepedently doing more in stablecoin volume per day (~$10 billion - $20 billion), not even considering native transfers or DEX activity. See below:
Transfer Volume (Stablecoins Only) ($ in MM)
Fundamentally, XRP is trailing its peers, by a LOT.
"Why Isn't XRP in My Portfolio?"
In the venture capital world, there's an idea that businesses should be in no rush to profit, as once they do, their valuation basis changes from theoretical to numerical. Although counterintuitive, it's common to see valuations fall once the business enters the green, as more objective financial multiples become applicable and wishful projected growth rates begin to normalize.
The last two crypto cycles of huge boom and bust digital assets were built on this very model.
Unfortunately for Ripple, the days of selling hopes and dreams disguised under the XRP ticker are numbered. Blockchains are no longer the future, they are the now, and the market value of protocols and networks will become increasingly determined by their underlying operating and financial metrics.
Unfortunately for XRP, its current fundamentals do not align with its market valuation. XRP trails its peers across key metrics such as:
Active Users
Total Transactions
Transaction Volume
Transaction Fees
Transactions per Second
Validator Count
See XRPSCAN for XRP specific data.
Secondly, the competition is fierce:
The adoption rate of comparable Layer 1 blockchains has thus far exceeded that of the XRP Ledger
The XRP Ledger's siloed environment could deter U.S. institutions from adoption
Instead, institutions like BlackRock (building on Ethereum) and J.P. Morgan (fork of Avalanche) may opt for modular blockchains that support interoperability
SWIFT is outdated, but it's still forward thinking. Its partnership with Chainlink aims to bridge traditional financial institutions to blockchain and enable tokenization, presenting a clear competitive barrier to Ripple
XRP: A Tale of Two Assets (Closing Thoughts)
Retail loves XRP.
As one of the highest performing large-cap digital assets over the past month, there's no denying the high opportunity cost of sidelining XRP. Its eye-popping price momentum could further propel on-chain adoption and drive valuations even higher.
On the other hand.
Legacy crypto hates XRP.
XRP's fundamentals tell a much different story, plagued by retail deception and euphoric speculation. The network lacks adoption, the technology is comparatively antiquated, and the asset has entered alarming levels of being overbought.
In conclusion, XRP has leveraged one of the strongest cases of information asymmetry. The "narrative" socialized to its investors does not currently align with the on-chain "data". Following XRP's recent surge in valuation, that begs the question, is XRP considerably overvalued?
Stay tuned.
Email me with any questions or if you'd like to discuss.
All the best,
Boomer
Boomer Saraga | Founder/Crypto Investment ManagerÂ
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Closing Disclaimer: This overview is for informational purposes only and is not representative of any guaranteed or future performance. Before making any investment decisions, individuals should consult their own advisors, including legal and tax advisor. While the information provided herein is believed to be accurate and reliable, none of Khelp, or any of their respective affiliates or representatives or any other person makes any representations or warranties, express or implied, as to the accuracy or completeness of such information.
Source: Artemis, XRPSCAN, XRP Livenet, Ripple.com
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