If you’ve been following cryptocurrency markets recently, you’d notice that one cryptocurrency, Ripple, has been on fire. If I was a snarky a**hole, I’d have told you that the reason Ripple is flying is because more people are buying than selling. But I won’t, because you’re here to learn and not to read snarky replies.
I’ve been following Ripple closely and have even wrote an fundamental analysis article on it recently. I believe I have very good reasons for why Ripple’s price is surging. They center around three things: (1) Successful pilot project with Japanese banks involving RC Cloud, (2) South Korea, and (3) a possible Coinbase listing.
RC Cloud and Japanese banks
Before I begin, I want to clear up a misconception around Ripple. Although Ripple has impressive banking partnerships, very few banks have any desire to work with RippleNet and XRP. The current banking partnerships center around Ripple’s xCurrent product which as no relationship with RippleNet and XRP. The problem with XRP is that it’s an incredibly unstable and deflationary cryptocurrency being speculated and manipulated on in often shoddy cryptocurrency exchanges all over the world. This, and the fact that Ripple holds 50% of the total supply of XRP, makes it a very undesirable asset for banks to hold, even if it can help banks reduce liquidity costs.
Moving on, here’s one reason for Ripple’s recent price surge: a consortium of Japanese banks recently completed a successful pilot program where the banks used Ripple’s RC Cloud product to settle interbank payments. RC Cloud is built on Ripple’s xCurrent product. As I’ve mentioned above, xCurrent has no relationship with RippleNet and XRP.
With the successful pilot, the banks are ready to bring the RC Cloud solution into production. This is great for Ripple, the company, but has little implications for RippleNet and XRP. Nevertheless, it’s clear that the excitement for the successful pilot program has spilt over to XRP investors.
Bithumb, a South Korean exchange, has consistently held the top spot for XRP trading volume over the entire period when XRP’s price surged from $0.25 USD to $2.80 USD. In fact, Bithumb currently has $2.6 billion USD in daily XRP trading volume. This is more than the XRP trading volumes of the next 3 top exchanges put together. Clearly, the South Koreans are incredibly excited for XRP as well. But why?
This is probably because two major South Korean banks are joining the consortium of Japanese banks in trialing RC Cloud for settling cross border payments. This new pilot program between Japanese and South Korean banks will take place over December. If successful, the project is planned to go live in early 2018. Having major South Korean banks involved in this RC Cloud pilot program is exciting, especially for South Korean investors.
However, we need to keep in mind that RC Cloud has no relationship with RippleNet and XRP. Banks are not adventurous enough to dabble in a cryptocurrency like XRP.
Possible Coinbase listing
Coinbase has hinted that they are aiming to list more cryptocurrencies next year. They recently listed Bitcoin Cash, the first cryptocurrency listing on the platform since the Litecoin listing in May 7 months ago. Coinbase is the largest on-ramp for retail cryptocurrency investors in North America. The service allows investors to purchase cryptocurrencies with credit cards and has a very simplistic user interface. A cryptocurrency’s listing on Coinbase will introduce it to many new investors and has very positive implications for its price.
XRP seems like one of the best candidates for a Coinbase listing given that it’s a top 3 cryptocurrency with a mature company behind it. However, as diligent investors, we must also cross reference this rumour with the Digital Asset Framework that Coinbase published last month outlining the properties a cryptocurrency should have for a listing.
We see that XRP passes many of the framework’s requirements but fails at others. In the “Team” requirement, we see that Ripple’s leadership is highly centralized and dependent on a small number of key persons. In the “Governance” requirement, Ripple also performs poorly given that the development of RippleNet is not led by a community development team but by a centralized entity, namely the Ripple company. In the “Open Financial System” requirement, Ripple performs poorly in terms of decentralization. As I’ve mentioned in my Ripple analysis article, RippleNet is still quite centralized. Finally, in the “Token Sale Structure” requirement, Ripple performs poorly in terms of Team Ownership given that the Ripple team currently owns at least 50% of the total supply of XRP.
Nevertheless, XRP does look like a great candidate for a Coinbase listing but an investor should definitely not trade on the hopes that it will go on Coinbase soon. Unless, of course, you want to front run all the other speculators but it’s a bit late for that right now.