XRP, created by Ripple Labs, is a digital asset designed for global payments and is a prominent cryptocurrency in the market. XRP aims to facilitate faster, more reliable, and cost-effective international transactions compared to traditional banking systems and some other cryptocurrencies.
XRP operates on the XRP Ledger, a decentralized blockchain technology. Unlike Bitcoin's proof-of-work system, XRP uses a consensus protocol, which requires significantly less energy and allows for rapid transaction processing. XRP's main use case is as a bridge currency in cross-border transactions, potentially reducing costs and settlement times for banks and financial institutions.
As of the latest data, XRP is among the top cryptocurrencies by market capitalization. It competes with other digital assets like Bitcoin and Ethereum but differentiates itself with its focus on financial institutions and payment providers. Ripple's partnerships with various banks and payment providers globally bolster XRP's standing in the market.
XRP's legal and regulatory status is a critical factor in its investment thesis. Ripple Labs has faced legal challenges, notably with the U.S. Securities and Exchange Commission (SEC), concerning the classification of XRP as a security. The outcome of this legal battle is pivotal in determining XRP's future regulatory environment and market adoption.
Investment in XRP carries risks, including market volatility, regulatory uncertainty, and competition. The outcome of Ripple's legal issues with the SEC could significantly impact XRP's adoption and value. Additionally, technological advancements in the blockchain and cryptocurrency domain present both opportunities and challenges.
If Ripple overcomes its legal challenges and continues to expand its partnerships, XRP could see significant growth, especially as global demand for efficient cross-border payment solutions increases. Its unique consensus protocol and low transaction costs position it well in the evolving digital payments landscape.
Operations
How did the idea of XRP come about?
The idea of XRP originated from the early cryptocurrency movement, particularly as a response to the limitations of Bitcoin. Developed by Ripple Labs, Inc. and conceived by Jed McCaleb and Chris Larsen, XRP was designed to enhance the efficiency and scalability of digital currencies for global transactions.
Unlike Bitcoin's proof-of-work mechanism, XRP uses the Ripple Protocol Consensus Algorithm (RPCA) for rapid transaction processing with minimal energy use. The core motivation behind XRP was to facilitate real-time cross-border payments more efficiently and affordably than traditional banking systems.
XRP's unique role extended beyond a digital currency; it was intended as a bridge asset within RippleNet, Ripple Labs' payment network. This network connects banks and financial institutions, aiming to reduce transaction costs and times. By using XRP as an intermediary for cross-currency transfers, RippleNet sought to improve the efficiency of international money transfers, addressing key challenges in the early cryptocurrency space.
What's the mission of XRP?
The mission of XRP is primarily focused on enabling faster, more efficient, and cost-effective global money transfers.
What's XRP and what's unique about it?
XRP is a digital asset created by Ripple Labs, Inc., intended for use in facilitating fast and cost-effective cross-border transactions. It operates on the XRP Ledger, a decentralized blockchain technology.
The most unique aspect of XRP is its transaction processing system. Unlike many cryptocurrencies that use proof-of-work (PoW) or proof-of-stake (PoS) mechanisms, XRP utilizes the Ripple Protocol Consensus Algorithm (RPCA). This consensus mechanism allows for rapid and energy-efficient transaction validations. Transactions on the XRP Ledger are exceptionally fast, often settling within 3-5 seconds, which is significantly quicker than those of many other cryptocurrencies, like Bitcoin or Ethereum.
Additionally, XRP was designed not just as a standalone digital currency but also as a bridge currency in RippleNet, Ripple's network for connecting banks and other financial institutions. This network aims to streamline global money transfers, making XRP integral to Ripple's broader vision of improving the efficiency of international banking transactions. This dual functionality — as both a digital currency and a tool for financial infrastructure — sets XRP apart in the cryptocurrency landscape.
Competition
XRP, primarily used for cross-border payments and remittances, has several peers or competitors in the cryptocurrency space, each with its own features and focus areas. Here are some of the main peers of XRP:
- Bitcoin (BTC): Although primarily seen as a digital store of value, Bitcoin is the original cryptocurrency and is used for a variety of purposes, including international transactions. Its widespread recognition and adoption make it a benchmark in the crypto space.
- Ethereum (ETH): Known for its smart contract functionality, Ethereum is more than just a payment currency. However, its wide adoption and the development of decentralized finance (DeFi) applications on its platform make it a significant player in the broader context of digital payments.
- Stellar (XLM): Stellar targets a similar market as XRP, focusing on facilitating low-cost, cross-border transactions. It is often considered a direct competitor to XRP, especially in terms of its aim to streamline international money transfers.
- Litecoin (LTC): Created as a "lighter" version of Bitcoin, Litecoin offers faster transaction times and lower fees, making it suitable for microtransactions and day-to-day use.
- Ripple's SWIFT Competitors: Ripple (and by extension XRP) often positions itself as a competitor to traditional banking systems like SWIFT, used for international bank-to-bank transactions. Any advancements in SWIFT's technology or other similar systems could impact XRP's relevance.
- Central Bank Digital Currencies (CBDCs): With many countries exploring or developing their own digital currencies, these CBDCs could emerge as direct competitors to XRP in the space of cross-border payments and remittances.
- Other Cross-Border Payment Cryptocurrencies: There are numerous other cryptocurrencies designed to facilitate cross-border payments, each with its own unique features and use cases.
- USD Coin (USDC) and Other Stablecoins: Stablecoins, pegged to fiat currencies like the US dollar, are increasingly used for international transactions due to their price stability, which could pose competition to XRP in certain use cases.
Each of these peers competes with XRP in different ways, whether it be in transaction speed, cost, scalability, or specific use-case applicability. The landscape is dynamic, with ongoing developments in technology, regulation, and market adoption continuously reshaping competitive positions.
| Feature/Aspect | XRP (Ripple) | Bitcoin (BTC) | Ethereum (ETH) | Stellar (XLM) | Litecoin (LTC) | SWIFT (Traditional) | CBDCs | Stablecoins (e.g., USDC) |
|---|---|---|---|---|---|---|---|---|
| Focused on Cross-Border Payments | ✓ | ✗ | ✗ | ✓ | ✗ | ✓ | ? | ? |
| Smart Contract Functionality | ✗ | ✗ | ✓ | ✓ | ✗ | ✗ | ? | ✗ |
| Transaction Speed | ✓ | ✗ | ✗ | ✓ | ✓ | ✗ | ? | ✓ |
| Low Transaction Cost | ✓ | ✗ | ✗ | ✓ | ✓ | ✗ | ? | ✓ |
| Wide Adoption and Recognition | ✗ | ✓ | ✓ | ✗ | ✗ | ✓ | ? | ✓ |
| Decentralized | ✓ | ✓ | ✓ | ✓ | ✓ | ✗ | ? | ✓ |
| Energy Efficiency | ✓ | ✗ | ✗ | ✓ | ✓ | N/A | ? | N/A |
| Regulatory Scrutiny | ✓ | ✓ | ✓ | ✓ | ✗ | ✗ | ✗ | ✓ |
| Price Stability | ✗ | ✗ | ✗ | ✗ | ✗ | N/A | ✓ | ✓ |
| Use in DeFi Platforms | ✗ | ✓ | ✓ | ✗ | ✗ | ✗ | ✗ | ✓ |
Key:
- ✓ : Yes/High/Applies
- ✗ : No/Low/Does Not Apply
- ? : Variable/Depends on the specific context or implementation
This table is a general comparison and the features or aspects can change over time due to advancements in technology, changes in market dynamics, and evolving regulatory landscapes. Additionally, the "?" in the table indicates areas where the characteristic can vary significantly depending on the specific situation or type of CBDC or stablecoin.
Market
To analyse the Total Addressable Market (TAM), Serviceable Available Market (SAM), and Serviceable Obtainable Market (SOM) for XRP, we need to consider the markets Ripple aims to disrupt or improve, primarily global remittance and cross-border payments. However, precise figures for XRP's TAM, SAM, and SOM are speculative and depend on various dynamic factors, including market adoption rates, regulatory environments, and competition. Here's an overview:
Total Addressable Market (TAM)
The TAM for XRP would be the entire global market for cross-border payments and remittances. According to the World Bank, global remittances alone were over $700 billion in recent years. The broader cross-border payment market, including corporate and institutional transactions, is significantly larger. The Bank for International Settlements (BIS) estimates that the daily global FX market turnover is over $6 trillion. However, not all of this is addressable by XRP due to various factors like regulatory restrictions and market preferences.
Serviceable Available Market (SAM)
SAM for XRP is the portion of the TAM that can be realistically served by Ripple's technology and XRP as a bridge currency. This includes markets and regions where digital assets are legally accepted for financial transactions and where Ripple has or can establish a presence. It also includes the subset of the global remittance and payment market that is open to blockchain and cryptocurrency solutions.
Serviceable Obtainable Market (SOM)
SOM is the portion of the SAM that XRP can realistically capture in the foreseeable future. This considers the current adoption rate of XRP, competition from other cryptocurrencies and traditional banking systems, regulatory hurdles, and Ripple's own business and partnership strategies. Given the highly competitive and rapidly evolving nature of the cryptocurrency market, along with regulatory uncertainties, quantifying SOM accurately is challenging.
Risks
Investing in XRP, like any cryptocurrency, carries several risks. These risks are influenced by a variety of factors ranging from market dynamics to regulatory challenges. Here are some key risks associated with investing in XRP:
- Regulatory Risks: XRP has been under significant regulatory scrutiny, notably from the U.S. Securities and Exchange Commission (SEC), which filed a lawsuit against Ripple Labs, alleging that XRP is a security and was distributed without proper registration. The outcome of this legal battle can significantly impact XRP's value and legality.
- Market Volatility: Cryptocurrencies, in general, are known for their high volatility. The price of XRP can experience rapid and significant fluctuations, influenced by factors such as market sentiment, regulatory news, technological developments, and broader financial market trends.
- Adoption and Competition: The success of XRP is partly dependent on its adoption by financial institutions for cross-border transactions. This adoption is challenged by competition from other cryptocurrencies and traditional financial systems. Changes in the adoption rate or the emergence of more efficient technologies could impact XRP's value.
- Technological Risks: Like any technology-based asset, XRP faces risks associated with technological failures, such as security vulnerabilities, code errors, or issues with the underlying blockchain technology.
- Liquidity Risk: While XRP is among the more liquid cryptocurrencies, its market liquidity can still be affected by regulatory decisions or major market movements. In some cases, platforms have delisted or halted trading of XRP due to regulatory news, affecting liquidity.
- Dependence on Ripple Labs: Despite XRP being decentralized, its perception and, to some extent, its success are closely tied to Ripple Labs. Negative news about Ripple, changes in its strategy, or its financial health can impact XRP.
- Global Regulatory Environment: Cryptocurrency regulations vary by country and are continually evolving. New regulations or changes in existing regulations in key markets could affect XRP's usability and acceptance.
- Cybersecurity Risks: Being a digital asset, XRP is subject to cybersecurity risks, including hacking and fraudulent activities. Investors need to ensure they use secure methods to store and transact XRP.
- Economic and Political Factors: Global economic conditions, political stability, and changes in government policies towards cryptocurrencies can affect the crypto market, including XRP.
- Environmental Concerns: While XRP is more energy-efficient compared to some other cryptocurrencies, the broader environmental impact of digital currencies can influence investor sentiment and regulatory approaches.
Valuation
What's the expected return of an investment in XRP?
The Stockhub users estimate that the expected return of an investment in XRP over the next five years is 5x, which equates to an annual return of 39%. In other words, an £100,000 investment in the asset is expected to return £500,000 in five years time. The assumptions used to estimate the return figure can be found in the table below.
Assuming that a suitable return level over five years is 39% per year or less, and XRP achieves its expected return level (of 39%), then an investment in XRP is considered to be an 'suitable' one.
What are the assumptions used to estimate the return?
| Description | Value | Commentary |
|---|---|---|
| What's the estimated current size of the total addressable market? | $40,000,000,000,000 | The total value of narrow money globally is estimated at $40 trillion as at 13th November 2023, according to The Money Project. |
| What is the estimated investment lifespan? | 250 years | |
| What's the estimated annual growth rate of the total addressable market over the lifecycle of the investment? | 0.83% | We have assumed that the growth rate of the TAM is the same as global population growth, which is 0.83% in 2022. |
| What's the estimated investment peak market share? | 5% | The Stockhub users estimate that especially given the key benefit of the asset, the peak market share of XRP is around 5.00%, and, therefore, suggests using the share amount here. As of 29th November 2023, XRP's current share of the market is estimated at around 0.62%. |
| Which distribution function do you want to use to estimate investment value? | Gaussian | Research suggests that the value pattern of investments is similar to the pattern produced by the Gaussian distribution function (i.e. the revenue distribution is bell shaped), so the Stockhub users suggest using that function here. |
| What's the estimated standard deviation of asset value? | 50 years | Another way of asking this question is this way: within how many years either side of the mean does 68% of value occur? Based on XRP's current price (i.e. $2,044.88) and XRP's estimated lifespan (i.e. 250 years), the Stockhub users suggest using 50 years (i.e. 68% of all sales happen within 100 years either side of the mean year), so that's what's used here. |
| What's the current value of the investment? | $243,366,347,553 | According to Yahoo Finance, the current value of XRO as of 15th November 2023 is $243,366,347,553. XRP currently trades at $2,044.88. |
| Which time period do you want to use to estimate the expected return? | Between now and five years time | Research suggests that following a market crash, the average amount of time it takes for the price of a stock market to return to its pre-crash level (i.e. the recovery period) is at least three years. Accordingly, Stockhub suggests that to account for general market cyclicity, it's best to estimate the expected return of the investment between now and five years time. |
| Which valuation recommendation method do you want to use? | Relative | There's two main types of valuation recommendation methods, relative and absolute. The relative method determines the investment recommendation relative to other investments (e.g. the investment is "suitable" if it's within say the top 10% of the investment universe in terms of investment returns), whereas the absolute method determines the recommendation based on a fixed return amount (e.g. the investment is "suitable" if it returns 50% or more). Assuming sufficient data, the Stockhub users suggest using the relative method. |
| Which top proportion of the investment universe constitutes a "suitable" rating? | 10% | The proportion depends on the user's preference. That said, typically, the higher the proportion, the higher the risk associated with the investment. |
| Which universe of investments do you want to use? | All investments | If the main objective of the user is to maximise investment returns, then the Stockhub users suggest using 'all investments' as the investment universe. |
Sensitivity analysis
The main inputs that result in the greatest change in the expected return of the XRP investment are, in order of importance (from highest to lowest):
- The size of the total addressable market (the default size is $40 trillion);
- XRP peak market share (the default share is 5%); and
- The estimated XRP lifespan (the default lifespan is 250 years).
The impact of a 50% change in those main inputs to the expected return of the XRP investment is shown in the table below.
| Main input | 50% worse | Unchanged | 50% better |
|---|---|---|---|
| The lifespan of XRP | 3x | 5x | 8x |
| The size of the total addressable market | 3x | 5x | 8x |
| XRP peak market share | 3x | 5x | 8x |
Actions
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