By Frank Corva
Ripple (XRP) was all the rage in the 2017 crypto bull market. Its price skyrocketed from less than $0.01 in March 2017 to $3.40 in January 2018. And then it dropped precipitously to $0.48 within three months.
Four years later, XRP hasn’t come anywhere close to testing its all-time price highs. But it’s still a top 10 crypto by market capitalization, according to CoinGecko.
This begs the questions:
- Why has XRP maintained such a relatively high market cap?
- Is XRP worth buying?
Before considering these questions, let me start by providing some background information on XRP.
A brief history of XRP
XRP came to market in June 2022.
Its network, the XRP Ledger (XRPL), the blockchain on which the XRP asset exists, was created by three engineers who were captivated by Bitcoin (BTC) but wanted to improve upon what they considered to be Bitcoin’s limitations.
One of the limitations that the creators aimed to improve upon was the fact that the Bitcoin network can only process four to seven transactions per second (TPS). So, XRPL’s creators designed XRPL to process 1500 TPS.
Another limitation of the Bitcoin network is that transactions on it are expensive, sometimes costing up to a few dollars. So, XRPL’s creators designed XRPL to facilitate transactions for less than a cent.
XRPL’s high TPS rate and low transaction fees were two of its main selling points, as the network was designed to facilitate quick and cheap cross-border transactions.
Also, while Bitcoin was designed to operate outside of the traditional financial system, XRPL was designed to operate within it.
Ripple Labs, more commonly just called Ripple and originally called OpenCoin, is the company that oversees XRPL, and it lends its services to many traditional financial companies including Bank of America, American Express, and Santander.
However, the main product that these traditional financial institutions employ is RippleNet, a blockchain-based global financial payment system that can facilitate cross-border transactions using XRP as a bridge currency, though XRP isn’t a necessary part of the equation. Other currencies can run on RippleNet’s rails.
RippleNet vs. Bitcoin’s Lightning Network
When XRPL was created, Bitcoin’s Lightning Network (LN), a Layer 2 network built on top of the Layer 1 Bitcoin network, did not yet exist.
Launched in 2018, LN is capable of handling 1 million TPS while its transaction fees are only 4 cents. This is much different than the Layer 1 Bitcoin network with which XRPL was competing a decade ago.
For now, though, developers behind LN are focused on implementing it as a replacement for credit card networks at restaurants and retail outlets like Chipotle, Walgreens and Walmart, while Ripple remains focused on integrating its technology into the world of traditional finance.
So, maybe there is space for both RippleNet and LN.
Keep in mind, though, that an institution’s using RippleNet does little to directly impact the price of XRP.
Does Ripple benefit from the Lindy Effect?
The Lindy Effect suggests that the longer something survives, the more likely it is to stick around.
The term was first coined in 1964 by Albert Goldman, a journalist who used to spend time with comedians at Lindy’s, a well-known deli in New York City. He noticed that the longer comedians were successful, the longer they tended to remain successful.
XRP has been a top 10 altcoin for more than five years in a market in which altcoins have only existed for a little over a decade.
Formerly popular altcoins like Namecoin (NMC) or Mastercoin, now Omni or OMNI, brought to market around the same time as XRP have faded into obscurity, becoming footnotes in the world of crypto. Yet XRP has endured.
We can credit XRP’s survival in part to the XRP Army, a community of diehard XRP holders that continue to believe that XRP’s price will one day go “to the moon,” crypto jargon for exponentially rise in price.
Members of the XRP Army are kinda like Juggalos, the rabid fans of the multiplatinum rap rock duo Insane Clown Posse: They’re not really the coolest kids in school, and they’re fans of not really the coolest act in town, but they undeniably have their own thing going on.
The XRP Army believes that its fearless leader, Ripple Labs CEO Brad Garlinghouse, will lead them to victory.
And Garlinghouse has endured, even as he’s been tied up in a lawsuit with the SEC for the last 16 months.
The SEC vs. Ripple
In December 2020, the SEC filed a lawsuit against Ripple Labs as well as Garlinghouse and Chris Larsen, executive chairman of Ripple Labs.
The SEC claims that XRP is an unregistered security because Ripple Labs used profits from the sale of the asset to fund Ripple Labs. The SEC also alleges that Garlinghouse and Larsen “effected personal unregistered sales of XRP totaling approximately $600 million.” In other words, Ripple’s leaders sold $600 million worth of their own XRP tokens, which — again — the agency considers to be unregistered securities.
Major crypto exchange Coinbase suspended trading and deposits for XRP soon after the news of the lawsuit broke.
Ripple Labs is fighting back, claiming that the U.S. government is arbitrarily choosing which cryptos to regulate as securities and which to regulate as commodities. The government currently treats BTC and Ether (ETH), the native currency of the Ethereum network, as commodities, though it’s yet to make that designation official.
Ripple also argues that the SEC is doing the opposite of fostering innovation by dragging the company through this lawsuit and claiming that XRP is a security while other top cryptos are regulated as commodities.
Garlinghouse has said that Ripple will consider a move outside of the United States after the lawsuit to a jurisdiction that offers greater regulatory clarity.
He’s also said that Ripple will consider an IPO after the lawsuit ends.
With the lawsuit expected to drag on into 2023, XRP holders and those interested in buying into a Ripple IPO will have to continue to wait to see what’s next for both XRP and Ripple.
Buy the dip(ple)?
So, in the wake of the latest crypto crash, is it time to buy XRP?
That’s a tough one to answer. Ripple is still engaged in its lawsuit with the SEC, and XRP remains unlisted on Coinbase.
Also, if you buy digital assets according to their fundamental value, or their “tokenomics,” then you might want to consider the use case for XRP.
If Ripple invents further use cases for XRP that give it value, then XRP may be worth investing in. If you want to invest in XRP to be a part of the XRP Army, then you might want to think more deeply about XRP as an investment.
From my perspective — as someone who does not hold XRP — it might be better to wait for Ripple to IPO and to invest in the company behind the asset, because the network technology that Ripple creates — and not the asset XRP — is what most of the companies that Ripple services use.
What remains on my mind: Has XRP really benefited from the Lindy Effect?
Its status as a top 10 crypto by market capitalization suggests that it does. But over the past two and a half years, it’s dropped to the No. 8 spot from the No. 3 spot.
Will Ripple go the way of Yahoo — a major company that Garlinghouse led before he became CEO of Ripple — and exist in the shadows of more prominent entities like it?
With Bitcoin’s Lightning Network gaining prominence, and with transactions on the network becoming faster and cheaper, there may be less of a need for cross-border payment technologies like RippleNet. RippleNet may exist in the shadow of Bitcoin’s Lightning Network just as Yahoo the search engine exists in the shadow of Google.
Is it time to buy XRP?
That’s ultimately up to you. But remember to consider the fundamental value of XRP before choosing to enlist in the XRP Army.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.