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A review of the bank-backed crypto and its challenges ahead
Cryptocurrency is once again a buzzword in the financial markets on the back of some heavy selloffs in equities and FX globally. Investors have been seeking shelters from the escalating US-China trade war, a potential currency war, increasingly aggressive easing from central banks, and geopolitical tensions. In our previous article “Bitcoin and a Chaotic World”, we’ve seen how bitcoin reacted to crises in the past and it could act as a new kind of safe-haven asset.
However, with the hype over the crypto markets, XRP has been constantly lagging behind other major cryptocurrencies.
In a broader sense, more big names are jumping onto the crypto bandwagon, however, some say that could jeopardize the outlook for XRP.
The following chart compares the YTD performances of XRP with BTC, and XRP didn’t live up to the hype even with the broader bullish sentiment in June. As of August 6th, 2019, BTC surged over 200% this year while XRP gave up more than 12% of its value.
What are Ripple and XRP?
Before getting into the possible reasons behind XRP’s recent price struggles, it’s important to review what Ripple is and the usage of XRP. Ripple consists of two parts; a money transfer platform (RippleNet), and its preferred currency (XRP). The system aims to provide a convenient international payment and money transfer platform for financial institutions and payment service providers. A long list of major investment banks are using Ripple’s services such as Standard Charter, Santander, and MUFG.
Meanwhile, XRP is a digital asset used for transferring value. It simplifies transactions across different crypto and fiat currencies and designed to reduce the processing time with minimal transaction fees.
XRP vs. Bitcoin
Technology-wise, XRP doesn’t have a blockchain, which sets it apart from bitcoin. It works on its algorithm called the Ripple Protocol Consensus Algorithm or RPCA. This means that while bitcoin is minable, XRP is not.
Data from CoinMarketCap.com shows that there is a total of 100 billion XRP existing in the world, approximately 25% of them or 4.28 billion XRP are now in circulation. Ripple owns more than half of the total supply of XRP.
Market Is Getting Crowded
Institutional money transfer is built into Ripple’s core, it’s what makes Ripple stand out from the crowd. However, this could also trigger uncertainty for the company because money transaction is a lucrative business, a lot of big players wanted to tap into this market. The US Federal Reserve perhaps is the latest one. Just this week, the Fed announced that it plans to develop a faster payment system for banks to exchange money. The new system would allow bill payments, paychecks, and other common consumer or business transfers to be available instantly and round-the-clock. Ripple was recently elected to the Federal Reserve’s Faster Payments Task Force Steering Committee, triggering rumors that the company’s technology could be used to power the Fed’s new system. Shortly after the announcement, Dilip Rao, Global Head of Infrastructure Innovation at Ripple, retweeted the news.
— Dilip Rao (@diliprao) August 5, 2019
The Fed’s announcement follows the reveal of Facebook’s Libra and JP Morgan’s JPM Coin, both built and designed for faster money transfers. Ripple says neither coin will impact its efforts, but others fear the company could lose market share, and that impact could spill over to XRP. Ripple is certainly not the only company that already in the field, with R3, SWIFT, and other payment startups making the competition even more intense.
Although more than 100 financial institutions have been using Ripple’s RippleNet and RPCA to move money globally, the majority of them do not use XRP as a medium. However, Ripple’s new partnership with money transfer giant MoneyGram is expected to give the XRP-based cross-border payment solution xRapid a big boost, and the company has revealed it is already up and running.
Short-term Technical Analysis
- XRP daily chart shows that it has been consolidating in the range between 0.30 to 0.32 in the past few weeks, and a symmetrical triangle pattern has formed.
- The Bollinger Bands squeeze, signals volatility may increase in the future, could be a possible trading opportunity.
The financial world has been trying to revitalize banking with the help of blockchain and other emerging technologies. Firms that are outside of the traditional financial system such as Ripple has been leading the game. However, the old world is catching up fast while other tech giants like Facebook are eager to get into the field. As a payment solution provider, Ripple is facing intense competition. As with all cryptocurrencies, institutional interest is key to the adoption of XRP. It will be interesting to see if Ripple can further utilize the use of XRP in its payment and transaction solution services and continue to stir that interest.
This post originally appeared on Medium. Read more.
Disclaimer: This material should not be taken as the basis for making investment decisions, nor be construed as a recommendation to engage in investment transactions. Trading digital assets involves significant risk and can result in the loss of your invested capital. You should ensure that you fully understand the risk involved and take into consideration your level of experience, investment objectives and seek independent financial advice if necessary.
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