Ripple is a system is optimized for permissioned financial institutions to transact directly with each other cost efficiently. XRP was issued as a liquidity management tool to facilitate transactions in illiquid currencies as needed across the network. So XRP will only ever be involved in a fraction of the activity flowing through the Ripple network.
You often hear Ripple mentioned as a potential replacement for SWIFT which dominants the cross border payments market for large institutions today. Presuming Ripple does displace SWIFT. It’s generous to assume XRP will be needed for 10% of SWIFT’s transaction volume or $500 billion daily based on it’s current volume of $5 trillion.
Because XRP is intended to help transactions flow across the network. I’d expect a limited holding period and frequent turnover as the institutions using the network are unlikely to want to hold it. So it might not accrue much value from the $500 billion of activity.
With a velocity of 10 times USD, another generous assumption as I’d expect it to be higher. The $500 billion of daily activity would translate into a value per XRP of around a $1.
From a top down valuation perspective it could potentially be worth more.
OnChainFX currently reports an NVT for XRP of 3.90.
NVT is the network value / average daily transaction volume. Network value is equivalent to market cap. So if XRP was to maintain this NVT while growing to $500 billion of daily volume. Its price would be $2 based on its circulating supply as of 7/2/2018.
Working from this value. XRP would need a transaction volume of 12.5 quadrillion to justify a price of $50 per token. This is why whatever the merits of Ripple’s technology because of its limited role in the network I do not perceive XRP as being investable?
Visit the site to subscribe to the newsletter and stay up to date on his latest research into cryptoasset investing.
CFA® and Chartered Financial Analyst® are registered trademarks owned by CFA Institute.
Latest posts by Steve Miller (see all)
- The Cryptoasset Flywheel - April 28, 2019
- Blocknet: Struggling to Gain Traction Amidst Competitive Pressures - March 17, 2019
- 10 Point Checklist for Auditing Cryptoasset Investments - March 9, 2019