First, some technicals. We can note that the selling pressure of everything else was to much for the continuation triangle to take hold and start a move up. If we look to RSI for some guidance we can see in the immediate past that a low RSI yielded a move up in both cases. A substantial move in one of them. I think it's unlikely that we will get that great a move this quick this time, but it's entirely possible. A lot of charts are setting up for potentially a large move. In order for a large move to the upside to happen, we need to break this downward gold trend line. For a significant move to the upside, this 60 cent level needs to be breached.
Keep reading if you want to read some Ripple opinions and possible controversy.
A lot of crypto people think that Ripple derives it's value from the potential use it has as money throughout the world. I am here to tell you that's incorrect. Ripple doesn't derive it's value from it's function as money. But from it's function as infrastructure in the current monetary system. There is a big difference. Let me give you an example to illustrate this point.
Right now international bank wires cost around $45 a pop to do. It probably costs the bank $30 per transaction in infrastructure, personnel, etc... to do it. If the bank can cut their cost to $1 per transaction by buying Ripple's infrastructure. They save $29 per transaction. If they are doing 1 million transactions a month, they are in essence saving 29 million dollars per month. How much do you pay to save 290 million per year? In Ripple's case you are buying the infrastructure to save on those expenses. Not necessarily that it has future value as money. But it has future value that it will save money and be more efficient in the long run. Would the bank buy 30 million ripple's at $1 to have that infrastructure to save 300 million a year? Absolutely. Would they buy 30 million ripple's at $5, 150 million total, to save 300 million a year. Absolutely. How high are the banks willing to pay? Do they just buy and sell when needed? I think they would keep a massive amount on hand to meet demand just on a monthly basis. Around $5 to save massive amounts of money is very reasonable and a discounted price to save that much money in the above scenario I outlined.
Bottom line, I think Ripple should be easily priced at $1 and higher. The question in my mind is fairly priced to the bank at 5, 10? What's the value of so much money being saved?
This is where I think Ripple's value comes in. As a business. Not as a "global currency" per se.
What do you think?
-Sherem
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Previous idea for reference.
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If we zoom in a bit we can see that ripple is coming down to support and will likely move up again soon.
I agree that xrp isn't looking to become a global curryency. However, I think there are more reasons xrp provides value to banks. I'm not sure holding it is the most beneficial use for banks though. The Ripple team has said repeatedly how using xrp as a liquidity tool will free up billions of dollars from the Nostro/Vostro accounts keep for settling payments. Until xrp becomes more stable, I don't see banks willing to run the risk of holding an asset that is way more volatile than american dollars. If they are able to buy and sell xrp instantly according to their settling needs, they save not only save on transactions costs like you mention, but they also save on liquidity costs since they can activate that money lying dormant in the nostro accounts. So they save twofold if they don't keep xrp or any other currency for that matter.
To me the value of xrp comes from the need for the ecosystem to provide liquidity, exchanges can do that just like Bitso is doing in the use of XRapid in Mexico, but they need to have enough XRP to cover the volume and value of the transactions that will go through them. So the higher the number of transactions using xrp through exchanges and the higher the fiat value, the higher the price of XRP.
it's my understanding that exchanges are the ones that will hold xrp for banks to provide them with instant liquidity that will save them billions on top of the millions in transaction costs. In this scenario, the price of xrp is not limited to what banks would consider worth it in order to save in transaction costs. In your scenario price would top out at around 10 dollars because after that they wouldn't save any money in transaction costs. Whereas if banks use xrp as a liquidity tool, the price is only limited to the volume and fiat value of transactions which keeps growing every year.
Well at least that's how I understand the ripple team's explanations anyway.
Thanks for the thought-provoking post :)
FranciscoLisboa
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@OSx28, 100% agree. Or 99% , since Banks, better than us, know the potential value of XRP and may already be buying a stock of XRP, predicting future price hikes.
Sherem
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@OSx28, Good points! I agree that liquidity is vital for banks in regards to XRP. The major question is how much do they need to buy in order to have some on hand. There is also a ton of XRP not in circulation, do the banks get access to that? hmm....
I don't necessarily agree with banks not running the risk of holding a large amount of XRP. I don't think they will view it has an investment you have to recoup, but rather a sunk cost. If you can buy 150 million to save 300 million a year. Doesn't matter if the value of the 150 goes to 0. You still doubled your investment and recouped your sunk cost within a year. Usually the time table for recouping that is much longer.
theredbaronZ
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You are correct about the vast savings for the banks in using some kind of cross-border DLT at electronic speed along with an efficient local fiat gateway.
I think that banks themselves don't need to hold a lot of XRP. XRapid is the black box system for transferring money from bank to bank. The liquidity partners or whatever they are called (major exchanges) will hold most of the XRP and the banks will use that infrastructure to do their transfers. So these partners will need to hold all of the XRP in order to cover the transfers and will re-use it for each transaction with reconciliation/settlement as needed to balance things out per hour/day/week or whatever. BUT there are only 100B XRP. So if banks are transferring trillions per day the value of each XRP will have to increase to provide that much liquidity.
If you want to ship your goods on a private highway you don't buy a bunch of asphalt and rebar. You sign contracts with the road building company so they know they have customers who will use their road. You run tests with your trucks to make sure the road can handle your traffic and does what you want. Then you pay to use their road at a discount.
Merry Christmas! Keep up the awesome TA
Sherem
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@theredbaronZ, Thanks for the post! and thanks, will keep up the TA as long as I have time!
theredbaronZ
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XRP shorts very high...
FranciscoLisboa
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Nice analisys, However I think the previous comment of OSx28 is right. As long as XRP volatility is high banks will not run the risk of holding large ammounts of XRP.
instead many of them are already using Xcurrent RippleNet and later on they will change to XRapid solution which will solve them also the liquidity problem.
Anyway I would not bet that some banks are not buying already a stock of XRP since they know that XRP price is going to rise (a lot) in the medium/long run.
To me the value of xrp comes from the need for the ecosystem to provide liquidity, exchanges can do that just like Bitso is doing in the use of XRapid in Mexico, but they need to have enough XRP to cover the volume and value of the transactions that will go through them. So the higher the number of transactions using xrp through exchanges and the higher the fiat value, the higher the price of XRP.
it's my understanding that exchanges are the ones that will hold xrp for banks to provide them with instant liquidity that will save them billions on top of the millions in transaction costs. In this scenario, the price of xrp is not limited to what banks would consider worth it in order to save in transaction costs. In your scenario price would top out at around 10 dollars because after that they wouldn't save any money in transaction costs. Whereas if banks use xrp as a liquidity tool, the price is only limited to the volume and fiat value of transactions which keeps growing every year.
Well at least that's how I understand the ripple team's explanations anyway.
Thanks for the thought-provoking post :)