From a purely price perspective, Ripple XRP has been a huge letdown over the past two months. But a closer look at the fundamentals reveals huge potential for the digital currency, even as the skeptics continue shouting from the rooftop.
No talk of Ripple’s merit can begin without mentioning its status as an institutional asset. Although much of the public discussion around cryptos is price related, Ripple is creating business value regardless of what the ticker says. Case in point: a consortium of 61 Japanese banks has used Ripple’s technology to develop a mobile app that settles payments instantly.
On Wednesday, Ripple announced that the consortium had created a new platform called “MoneyTap,” which provides on-demand payments to Japanese customers 24 hours a day, seven days a week. The app will debut in the fall, with consortium members SBI Net Sumishin Bank, Suruga Bank and Resona Bank the first to pilot the project.
Ripple says the consortium represents more than 80% of Japan’s banking assets, giving MoneyTap a potentially huge audience.
Of course, the power lies in the blockchain. The distributed ledger technology is the main catalyst behind MoneyTap. If it takes off, MoneyTap will help the Japanese circumnavigate the narrow 8:30 a.m. – 3:30 p.m. transaction window for sending and receiving money (and that’s only weekdays, I might add).
The Banker’s Cryptocurrency
Given the eagerness by which banks have readily adopted Ripple, it’s easy to see why people call it the “banker’s cryptocurrency.” Unlike its truly decentralized counterparts, such as bitcoin or Ethereum, Ripple works within institutional structures to provide liquidity and instant transactions to the financial industry.
In fact, it can be argued that XRP is ideally suited to be a liquidity tool rather than a purely transactional unit or investment haven. If the banks decide to use the actual token instead of just the infrastructure, they’ll be able to “bridge” between fiat currencies when conducting cross-border transactions. Although banks do not need XRP, higher institutional adoption of the Ripple blockchain will likely mean favorable returns for holders of the digital currency.
In other words, it may be too premature to toss Ripple to the side just because banks don’t need XRP. There’s a lot more going on behind the scenes.
If banks do start using XRP, there’s a reasonable chance they will hoard huge amounts of it for future use. Although it’s too early to speculate how (or even if) this will play out, it’s not unreasonable to expect such a scenario to lend favorably to the currency’s underlying value.
Solving Real World Problems
The above examples clearly show Ripple is out to solve real world problems. This is accomplished through its xRapid (cross-border payments) and xCurrent (liquidity) systems. From the perspective of value investing, this is an ideal scenario.
Of course, banks aren’t the only entities adopting Ripple’s systems. Western Union and MoneyGram are also testing XRP in the money transfer business.
There’s plenty more where that came from: American Express, MercuryFX and IDT at some point have all announced a stake in the Ripple blockchain.
From the perspective of fundamentals, Ripple’s outlook is getting brighter by the day. The author believes institutional partnerships are only just getting started. This means better news headlines for investors and a better chance of widespread adoption by the market.
If only traders could invest in Ripple the company, its share price would probably reflect all the excitement surrounding its future. In the absence of a Ripple IPO, the XRP cryptocurrency provides plenty of upside.
As a reminder, the author is completely neutral on Ripple. I actually prefer other cryptocurrencies and don’t have any connection with the Ripple company outside of secondary research.
Disclaimer: The author owns bitcoin, Ethereum and other cryptocurrencies. He holds investment positions in the coins, but does not engage in short-term or day-trading.
Featured image courtesy of Shutterstock.