The last week has shown XRP to be on huge rally, more than doubling in value and becoming the second largest coin in terms of market cap. This has happened in an overall rally for the alt coins where almost everyone has seen gains but still, this should make long term XRP holders very happy.
However, that brings up an issue that is very difficult to get an answer to, and that is the fact that there are two versions of XRP for purchase. The one retail investors hold, and the ones institutions can apply for. We are all very aware of the version that is traded on major exchanges like Bittrex and Binance, but there is a second version, that is cloaked in secrecy unless you are a financial institution. As you can see on this page, there is separate link for institutional buyers. Are they simply getting a better price? Are they just buying directly from the Ripple corporation who hold a vast amount of XRP? If so it means there are essentially two markets for the same asset. I can understand that but it means everyone else is buying a supposed market traded equity at a premium while ignoring a secondary market that may or may not exist. If XRP is going to be used as a settlement currency, which it needs to do for XRP to hold any value, how can they have two separate prices for it? The value needs to be transparent for it to be a global settlement currency.
But the real issue comes to liquidity. If there is insufficient liquidity in XRP there is no reason for banks to use the coin to settle out their transactions. They will simply use the RippleNet technology and settle the old fashioned way.
But let’s look at liquidity in a simplified way, banks generally want to settle in the most liquid asset they can. That’s one of the reasons many transactions settle in USD around the world, it’s simply the most liquid. There is virtually no way any bank would want to settle in XRP which has such low liquidity and use. If they were going to settle to a crypto, it would need to be something like BTC, simply based on liquidity. The last few days, BTC had a daily volume of around $17 billion. In that same time, XRP had a volume of only $3 billion and that’s with the recent surge in trading of XRP and a somewhat stable BTC. If the revolution of crypto as a currency and store of value is truly what everyone believes, then that gap will only grow as BTC or another decentralized currency coin gains popularity. Banks will want to settle in the most liquid and most available currency. And they especially won’t settle in a coin that they don’t even need to use, nor does anyone else except as a speculative investment vehicle.
So what does all this mean? Mostly it means that RippleNet appears to be interesting to bankers, but settling to XRP is not unless XRP can surpass all other coins in volume and use, which I don’t see happening.
Now this article mostly deals with whether or not banks will use XRP or not as a settlement currency. I don’t believe they will for the reasons I explained above, however as a trader who may only be concerned with short term profits, there is still opportunity here if the people behind Ripple can continue their current marketing push.
I can see XRP easily pushing past $3 with continued marketing efforts and press attention. However, my personal opinion would be take profits along the way, and choose another option as a long term hold as Ripple may not be able to hold those gains as other currencies go up in value.