XRP is one of the most highly-traded digital assets which has made it a focus of both traders and investors since it first hit markets. With plans to provide an enterprise-grade blockchain solution for global payments, Ripple has grand ambitions for the closely associated XRP token. However, both have a few important challenges and obstacles to overcome in order to achieve widespread success.
So, will the price of XRP keep increasing? If not, why?
On 22/12/2020 the Securities and Exchanges Commission (SEC) filed a lawsuit against Ripple and two of its executives.
According to the SEC press release “The complaint alleges that Ripple raised funds, beginning in 2013, through the sale of digital assets known as XRP in an unregistered securities offering to investors in the U.S. and worldwide.”
Ripple filed a 93-page response to the lawsuit on 01/29/2021, stating that “XRP performs a number of functions that are distinct from the functions of “securities” as the law has understood that term for decades. For example, XRP functions as a medium of exchange — a virtual currency used today in international and domestic transactions — moving value between jurisdictions and facilitating transactions.”
Disclaimer: This information should not be interpreted as an endorsement of cryptocurrency or any specific
provider, service or offering. It is not a recommendation to trade.
Ripple Protocol Consensus Algorithm (RPCA)
XRP price prediction
Cryptocurrencies are infamous for their volatility, but what’s not often realised is that there are several competing factors that can have a positive or negative effect on any coin or token. Before deciding whether to buy XRP or any other cryptocurrency, you’ll need to carefully assess those factors to determine whether you think XRP is headed for price growth or a decline.
XRP vs Ripple: What's the difference?
Unsure about the difference between Ripple and XRP?
Ripple is the name of a US technology company that aims to make it easier and cheaper to send money overseas. Meanwhile, XRP is the native digital asset of the XRP Ledger and is used to facilitate transactions between different fiat currencies.
Ripple uses XRP as part of its RippleNet On-Demand Liquidity service to provide liquidity for cross-border payments, with the goal of eliminating the need for financial institutions to hold costly pre-funded Nostro accounts.
Sending international money transfers using bank wire transfers is an expensive and time-consuming experience. Ripple, which uses XRP, offers fast transactions and negligible fees, providing key advantages over existing transfer methods.
According to the World Bank, global remittance payments are expected to grow by 3.4% to roughly US$466 billion in 2018. Therefore, there’s a large market for Ripple to potentially tap into.
Ripple uses XRP to facilitate international money transfers by acting as a settlement layer. Essentially, it lets people make international money transfers much faster and with minimal fees. It’s been picked up by a range of banks and international organisations, and it is mostly designed to facilitate transfers in a business setting. Individuals will likely be using Ripple indirectly through their banks and indirectly benefiting with faster transfers and lower fees.
To help increase the adoption of XRP as a medium of exchange, Ripple has made several strategic acquisitions including money transfer platforms. The most notable of which was a US$50 million stake investment in MoneyGram, which they have since sold-off a third of.. Other businesses Ripple is invested in include crypto trading firm Algrim and the Logos Network.
These corporate partnerships and a commitment to bringing cryptocurrency to the business world, not to mention XRP’s widespread availability on exchanges, increase Ripple’s credibility in the eyes of the public. This could, in turn, increase demand.
Despite a total supply of 100 billion coins, the Ripple company has put 55 billion XRP in escrow. These are held in place by a smart contract which releases 1 billion XRP per month over 55 months. Any unused amount will be put to the back of the queue, for release in month 56, 57 and so on. The XRP tokens are released to Ripple partners and other affiliates in an effort to help get them involved as well as to let them test drive XRP and to start using it with low costs. So rather than going to the exchanges, the goal for the newly released XRP is to help grow its use.
The XRP ledger is more than just a transferable store of value. It also aims to offer smart contract functionality in an effort to increase its applications considerably. Institutions will be able to use XRP for a range of different purposes.
What could hold XRP back?
Ripple has announced partnerships with a long list of financial institutions that are testing its technology. However, until the platform can achieve widespread adoption with a wide range of banks, there will continue to be uncertainty around its value in the future.
Cryptocurrencies are still in their infancy and the legislative environment around the world remains unclear, so the adoption of cryptocurrency by major financial institutions could be slowed by regulatory challenges.
In December 2020 the SEC lodged a lawsuit against Ripple, accusing the company of using the XRP token as an illegal security to raise funds. This is the most recent step in long-fought PR (and now legal) battle by Ripple to prove that XRP is not a security, and not directly controlled by Ripple who maintain it is a decentralised ledger. Following the SEC news the value of XRP dropped by over 50% in a single week, which suggests the outcome of the lawsuit may have an effect on the future value on XRP.
In order to use Ripple payment technology, banks don’t actually have to use the XRP token. So even if Ripple’s technology is widely adopted, that doesn’t necessarily mean the price of XRP will rise accordingly.
With XRP’s large supply and currently limited use, traders will want to be wary of readjustments following price rises. This is especially true for a coin like XRP that benefits from stable pricing and is designed more for corporate use than individual use.
Banks use Ripple to conduct international transfers on behalf of individuals, but you need to be aware of the continued shift towards direct peer-to-peer systems and whether this could cut Ripple and the banks out of the equation. This is where Stellar Lumens come in. Lumens are also designed to facilitate international money transfers, but the main difference is that Stellar is designed for individuals to make international money transfers, or currency exchanges, directly with each other peer-to-peer. Essentially, it lets people exchange currencies and send money overseas by trading directly and automatically with each other, and cutting banks out of the equation. You’ll need to decide if this will be a problem for Ripple and XRP in the long run. You can also check out other potential competitors to Ripple further down this page.
Decentralisation, privacy and anonymity are a key focus for many cryptocurrencies, so Ripple’s decision to market itself to banks and major financial institutions has been criticised by some commentators.
Following the announcement by the SEC that they had opened a lawsuit against Ripple, a wave of exchanges delisted or halted trading on XRP. This high-volume exchanges such as Coinbase, Binance, Bitstamp, Crypto.com and Bittrex as well as funds Galaxy Digital, OSL and removal from the Bitwise 10 index.
With the total supply of XRP set at 100 billion, it’s worth considering the effect this will have on the supply/demand equation and how it influences price.
The actions of Ripple’s competitors could also lead to rises or falls in the price of XRP, so you’ll need to monitor news and developments from other similar projects. Some of the platforms to keep an eye on include:
Stellar (XLM). Regularly listed as Ripple’s main competitor, Stellar aims to offer fast, affordable and reliable cross-border payments. Developed by one of Ripple’s co-founders, Jed McCaleb, Stellar has so far focused on different customers to Ripple, focusing on providing an inclusive global payments system rather than targeting major financial institutions. Find out more about how the two projects compare in our comprehensive guide.
SWIFT. Long seen as a reliable and secure way to send cross-border payments, SWIFT has been serving banks since 1973. It’s come in for some heavy criticism from blockchain advocates, but SWIFT has recently been exploring ways to speed up cross-border payments, including the use of blockchain technology.
Beyond 2021: What does the future hold for Ripple?
There are interesting times ahead for XRP, and by extension, Ripple.
In late 2020 news of the SEC lawsuit crashed XRP prices by over 50%, only to rally by as much as 70% a month later in January 2021 following a pump and dump coordinated on Telegram off the back of the GameStop saga. Events like this demonstrate that XRP continues to be one of the more interesting coins for traders in search of volatility and wild price swings.
Despite a bruised image we can expect Ripple to focus on rebuilding confidence in XRP and forming partnerships with an increased number of big-name corporates. So far in the history of Ripple, we’ve seen many impressive announcements of the platform partnering with financial institutions that are testing its technology, including Western Union, Saudi Arabia’s central bank, Santander, UniCredit, UBS and a host of others.
What many will be watching with interest throughout this year and those ahead is whether or not those banks will actually adopt Ripple’s technology beyond pilot programs. If it can deliver speed, low transaction costs and scalability as promised, and beat out the competition to become the payment processor of choice for banks, there’s plenty of potential for growth.
Ripple is an exciting project that certainly has the potential to become a major player in the world of payment processing. It boasts impressive financial backing and a long list of big-name corporate partners, as well as what its CEO has called a US$15 billion war chest to fund future acquisitions and development.
However, whether or not it can achieve widespread adoption by, and work successfully with, the existing banking world remains to be seen. Banks are notoriously conservative and hesitant to adopt new technology, and this could be a significant barrier the project will need to overcome.
The bottom line is that you should always do your own research. Make sure you carefully consider all the factors that affect the price of Ripple before deciding whether or not to buy any XRP.
At the time of writing, the author holds IOTA and XLM.
Disclaimer: Cryptocurrencies are speculative, complex and involve significant risks – they are highly
volatile and sensitive to secondary activity. Performance is unpredictable and past performance is no guarantee of
future performance. Consider your own circumstances, and obtain your own advice, before relying on this information.
You should also verify the nature of any product or service (including its legal status and relevant regulatory
requirements) and consult the relevant Regulators' websites before making any decision. Finder, or the author, may
have holdings in the cryptocurrencies discussed.
Tim Falk is a freelance writer for Finder, writing across a diverse range of topics. Over the course of his 15-year writing career, Tim has reported on everything from travel and personal finance to pets and TV soap operas. When he’s not staring at his computer, you can usually find him exploring the great outdoors.
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