The crypto market may seem like new and uncharted territory, and in many ways it is, but that doesn’t mean tried and tested investment principles can’t be applied. Warren Buffett once said, “True wealth comes from being an early investor in innovation.” The same advice holds true in the crypto market. For an asset to be a favorable investment, it must solve a problem and have considerable growth potential.
Over the next few years, I believe that many cryptocurrencies will converge to zero, while the top few will emerge as major assets which will significantly change the global financial system. These select few will be cryptos with only the most sound fundamental value and the greatestest innovation potential. One of the crypto assets I’m confident will come out on top is Ripple. That’s because it provides a solution to insufficiencies that have been plaguing the banking world for decades.
Cross Border Payments Need Modernization
In 1977, the SWIFT payment system was created as a way for banks to transfer funds across borders. Despite its many shortcomings, SWIFT is still the primary method used by most financial institutions today. The transfer of funds currently takes between 3 and 5 days to settle in the recipient's bank account due to multiple clearances along the way. This delay is a major inconvenience for institutions, as funds cannot be instantly accessed when necessary. Also, there are outrageous fees associated with this form of transfer, leading to significant deadweight loss for institutions and individuals.
The ancient SWIFT payment system has many issues and banks and their customers have suffered as a result. The cross-border payment system is desperate need of modernization.
The image below shows how funds are currently transferred across borders.
Ripple provides a solution to these problems. Using Ripple’s payment system known as XRapid, XRP provides the liquidity necessary for institutions to transfer funds across borders instantly, while paying nearly zero transaction fees. For example, Shinhan Financial Group in South Korea needs to send 100 million KRW to Mitsubishi Financial Group in Japan, who needs to exchange that KRW into JPY. Using SWIFT, this transfer will take days to settle, and have relatively high transaction costs. Using XRapid, Shinhan Financial Group can buy 100 million KRW worth of XRP, send it to Mitsubishi Financial Group, where they can sell the XRP into JPY. This transaction would take less than 10 seconds and have fees totaling less than $0.01. The image below shows how XRP facilities cross-border payments and drastically improves global liquidity.
(Image courtesy of Ripple)
Over the past few years, Ripple has partnered with many major institutions, such as PNC Bank, Santander and SBI Group. These firms have announced plans for integration of Ripple’s cross-border payment system, citing vastly increased settlement speeds and reduced transaction costs of up to 70%. SBI Group’s CEO, Yoshitaka Kitao, recently stated: “In 2019, the world’s 20 top global banks will be using XRP.” As more institutions adopt the XRapid payment system and integrate it into daily functions, XRP’s true value will emerge.
Exponential Growth Potential
According to Ripple, there is over $155 trillion sent across international borders annually. In 2018, there was less than $1 trillion of volume on XRP’s ledger. This shows the incredible potential for XRP if it emerges as the standard cross-border payment for all major institutions. As leading institutions begin to use XRP through XRapid, volume and price will increase tremendously.
Technically, there is a chance that XRP has bottomed and will not see any significant downside in the future. After the incredible exponential run during the hype of crypto-mania in late 2017, price has retraced completely and found support on previous highs from before the major run up began, around $0.26-0.29 (see blue rectangle below). With price currently trading slightly above $0.30, early 2019 might be one of the last times investors are able to buy XRP anywhere near these prices ever again.
(Chart courtesy of Trading View)
Over the past few months, price has bounced higher from this support region four times. The region is now acting as a potential bottom, which indicates that buyers are very strong at these levels and will likely be buying at any return to the region. This shows that a decline below $0.26 is unlikely. However, if a significant capitulation event occurs pushing the price of Bitcoin towards $1000, there is a chance XRP will decline below this support region. Nevertheless, it is likely price will be very quick to recover and head upwards over the coming years.
(Chart courtesy of Trading View)
The cryptocurrency craze of 2017 shares many similarities with the tech bubble of the late 1990’s and early 2000’s. After the dust was settled, only a few prominent tech names remained. Companies such as Amazon, which saw gains of over 1000% from 1998 - 1999 retraced completely before starting the next bull cycle. After the tech bubble ended, Amazon’s stock price increased from nearly $7 in 2001 to over $2000 per share in 2018, a 28,500% increase. This tremendous increase was fueled by the incredible innovation Amazon created, the benefits to society and real world problems the company found solutions for. On the other hand, companies such as Broadcast.com, TheGlobe.com and Lycos failed to innovate and solve problems which eventually lead to their bankruptcy. This also has potential similarities to the crypto boom of 2017, as many projects that do not prove real solutions to problems are likely to disappear over the next few years. The ability to invest in innovative cryptocurrencies that solve real world problems is a once in a lifetime opportunity.
For an asset to be a successful investment, it must solve a problem. It must also have considerable growth potential, while providing a benefit to society that consumers will demand. XRP solves the problems affiliated with the outdated SWIFT system. Inefficient payment delays, outrageous transaction fees and inflation risk due to holding foreign currency are problems that Ripple has solved. XRP allows users to send money anywhere on the globe in seconds, for under one cent. It allows banks to only hold domestic currency, which eliminates foreign inflation risk and liquidity costs.
Many large institutions have already partnered with Ripple, and announced plans to integrate the XRapid payment system into their daily cross-border payment functions. As more institutions adopt XRapid, the price of XRP will likely grow tremendously.
The views, thoughts, and opinions expressed in this article belong solely to the author, and not necessarily to Voyager Digital or any Voyager subsidiaries. Please do your own research and consult with an investment professional before making investment decisions