If the last year in Crypto feels like nothing you’ve ever witnessed before in history, that’s probably because you haven’t. Never have prices of assets climbed so far in such a short space of time. Nowhere is this more true than in the case of XRP, Ripple’s recent blockbuster break-out Crypto.
In the past year the digital currency has gone up by 35,000%. How has this happened and how much further does it have to climb?
To answer this question, we need to distinguish between sovereign pairs buying of XRP and Crypto buying of XRP. Contrary to popular belief, the former, though large by size, has very little impact on the price of cryptocurrencies comparatively speaking. Articles suggesting that XRP is being manipulated by the South Korean won purchases then are just plain naïve. That is not even possible given bitcoin’s recent rise.
What’s Moving Ripple’s XRP?
First, let’s establish a key fact: bitcoin buying is the Number One reason that XRP is racing skywards the way that it is right now. Simply, with bitcoin purchases of XRP, the price impact is about 15x what it was last year in size, since this is roughly the percentage that bitcoin has increased in value since then. With sovereign currency pairs on the other hand, which barely increase in value at all from one day to the next, trading impact on Crypto prices is very minimal.
XRP does about 75% of its trading in Korean Won and USD:
Once we extract the Crypto pairs data and sovereign pairs data from the list a much clearer picture emerges however:
Immediately, it is clear that the Korea won purchases are far higher in price than the other sovereign pairs or indeed, than the Crypto pairs are on average.
This is not due to Koreans “manipulating” the XRP price, however, as has been suggested in several places.
The explanation for the higher-cost Korean XRP purchases are rather more to do with crypto values. Koreans have 2 choices to purchase XRP in the size volumes you see here: they can either buy XRP in won, or they can use BTC to purchase XRP. However, in recent days the Korean government has hinted at a Bitcoin ban, which has removed the vast amount of liquidity available to make such purchases cost-effective. Therefore, any won purchase of XRP must by the law of currency arbitrage include the cost a trader would pay to convert won into bitcoin and make the XRP purchase (what currency traders call the “liquidity premium”). The rising cost of BTC that is factored into this side of the trade (and which is also reflected in South Korea’s litecoin prices, incidentally) is merely reflected in the direct won purchase of XRP, that’s all. The increased price of XRP in Korea has nothing to do with “pumping” at all.
XRP Supremacy Shows $2.25 Trillion Potential
Given such background as to how XRP price is being formed, how far can Ripple’s currency go now? If we consult the following summary of the data referenced above, some interesting values stand out:
Crypto pairs trading of XRP comprises by far the smallest minority of trades. However, given that we have already ascertained that the won purchases of XRP are in effect, circumventions of the Korean bitcoin purchases of XRP (and therefore basically just bitcoin purchases of XRP expressed alternately), we can therefore bring the 25% of crypto purchases up to comprise 72% of the total Crypto pairs trading volume. That is important, because it carries with it an expression of asset price inflation which knocks-on in the form of additional value increases.
In the past 12 months, bitcoin has risen roughly 15x in value. In other words, for every bitcoin (or won) 12 months ago that was purchasing XRP there is now an additional $1,500 of crypto that is making the same purchase. This begins to explain clearly how XRP underwent such a gigantic price increase recently – simply, the bitcoin doing the XRP buying had increased so manifold that the knock-on effect was to blow XRP up overnight like a hot air balloon.
Roughly, all this equates to is an additional $5.5 billon or so of cash per day buying into XRP. Assuming the daily average increase in cash purchases holds and multiplying by the number of annual days, the end-of-year estimate on XRP comes in around $2.25 trillion market cap. How fair is this? Well, for one, XRP’s issuer Ripple is going after a market 10 times the size of that. Add on top of that the $10 trillion blockchain market and it doesn’t sound so far-fetched.
These numbers are purely based on current volumes and may differ from the reality by a margin of 25% or so, but not that much. Now that XRP has grabbed the world’s attention, there is likely to be a continued decoupling of Bitcoin and the Top tier of the crypto market, with XRP taking a much bigger share of it than anyone at first thought.