XRP, a prominent cryptocurrency, has struggled to recover from its all-time high of $3.84, reached on January 4, 2018. Despite the volatile nature of the crypto market, XRP’s price remains approximately 86% below its peak. In October 2022, XRP was trading at a price similar to its current value. Crypto analyst CryptoTank (@Tank2033js) has delved into the factors contributing to this stagnation, capturing significant attention with over 214,000 views on his explanatory thread.
Why Is XRP Price Stagnating? When Will It Change?
CryptoTank addressed the lingering question on many investors’ minds: why isn’t the XRP price moving as anticipated? He explained that the XRP price is determined by dividing the value or volume transacted on the XRP Ledger (XRPL) by the circulating supply of XRP. However, he highlighted that the widely cited circulating supply of approximately 56 billion XRP is misleading. Not all of this supply is actively used on the ledger; a considerable portion is held in private wallets, by large holders known as “whales,” or stored on exchanges.
Understanding Active Supply
According to CryptoTank, the key determinant for XRP’s price is the amount of supply actively involved in transactions on the ledger. He estimates that only about 20% of the circulating supply is active daily, equating to approximately 10 billion XRP. This active supply is crucial for maintaining liquidity in Automated Market Maker (AMM) pools, which enable transactions by pairing XRP with other tokens or currencies such as RLUSD (Ripple USD).
The Role of Financial Institutions
Banks and financial institutions intending to use the XRPL for settlements will operate with their own tokens or central bank digital currencies (CBDCs), utilizing the liquidity available in the AMM pools. The XRPL’s algorithm is designed to identify the most efficient settlement path, defaulting to XRP unless an alternative offers a better route.
Potential for Increased Value on the Ledger
CryptoTank illustrated the potential scope of value transacted on the ledger by referencing the daily settlement volumes of major financial institutions. For instance, SWIFT processes approximately $5 trillion daily, J.P. Morgan Chase handles around $10 trillion, Bank of America processes about $7 to $8 trillion, and SBI Holdings in Japan settles approximately $2 trillion daily. In total, these institutions handle about $25 trillion in daily settlements.
Ripple, the company behind XRP, reportedly holds over 1,700 non-disclosure agreements (NDAs) with various banks and financial institutions, suggesting a vast potential user base for the XRPL. Assuming that only 10% of the settlement volume from these four institutions migrates to the XRPL, CryptoTank estimated an on-ledger transaction volume of $2.5 trillion daily. To facilitate smooth and efficient transactions, the liquidity in the AMM pools needs to be substantial, approximately double this value, to avoid transaction failures.
Calculating the Necessary XRP Price
Based on these figures, CryptoTank calculated the necessary XRP price to enable this level of daily settlement. By dividing the $5 trillion needed for smooth transactions by the 10 billion XRP in the pools, he arrived at a required XRP price of $500. This price point would ensure efficient settlement across different currencies and CBDCs.
Beyond the Current Market Perception
CryptoTank argued that traditional metrics used to assess cryptocurrency value, such as market cap and retail speculation, are less relevant in the context of XRP’s intended use for institutional settlements. He emphasized that XRP must be priced high to facilitate large, fast, and cost-effective transactions, a vision not fully appreciated by all in the crypto community.
While some analysts remain skeptical, focusing on technical chart analysis, CryptoTank highlighted the impending shift towards institutional adoption. He believes this shift will overshadow retail speculation, making many coins obsolete. The entry of significant institutional investments into the crypto space will fundamentally change the market dynamics.
At the time of writing, XRP was trading at $0.542. As the crypto landscape evolves, the potential for XRP to play a critical role in global financial settlements remains significant.
