Over the past week, altcoin Ripple’s (XRP) price has gone through the roof. It has seen an unprecedented 140 percent growth over the past seven days, up almost 63 percent in the past 24 hours alone, trading at around $0.61 at press time.
XRP has gone as far as to beat Ethereum (ETH) to be ranked number two by total market capitalization on CoinMarketCap (returned to the third spot). What could possibly drive the price so high? While there’s no definite answer to that question, here’s some background and theories.
Background: What does Ripple bring to the table?
Ripple is a California-based payment network and protocol company that was established in 2012. Essentially, it focuses on facilitating transfers between major financial corporations.
Ripple is not quite your average cryptocurrency — in fact, some might argue it’s not a cryptocurrency at all. It champions a less conventional ideology for the industry: Ripple doesn’t want to overthrow the government along with the banking system. Conversely, it chose to work with mainstream financial players from the very start. As Brad Garlinghouse, CEO of Ripple, said in March:
“We were, from the beginning, really looking at how we work with governments, how we work with banks. And I think some in the crypto community have been very much, ‘How do we destroy the government. How do we circumvent banks?’”
Garlinghouse believes that governments aren’t going anywhere, saying, “In my lifetime, I don’t think that’s happening” — which is why he finds it logical to cooperate with them and work within the existing regulatory framework. That attitude helped Ripple land crucial partnerships with important players, including China-based payment services provider Lian-Lian, the Saudi Arabian Monetary Authority and Western Union, among others.
Ripple’s native token is XRP. However, the company draws a line between the two: Ripple presents itself as a technology company, while XRP is an “independent digital asset” built on open-source blockchain technology called XRP Ledger. As per its website, Ripple uses both XRP and XRP Ledger in its products, such as xRapid, and owns 60 billion XPR — however, it allegedly does not control either the token nor the technology.
Theory 1: xRapid’s launch
xRapid is a blockchain-backed tool designed by Ripple for easing cross-border fiat transfers between financial institutions.
Ripple hopes to use it to pioneer the mainstream financial system: After testing the platform to run payments between the United States and Mexico in May, it proved to save transaction costs by 40-70 percent. Bypassing conventional foreign exchange providers, xRapid also increased transaction speed to “just over two minutes.” In comparison, according to McKinsey research, typical international payments take between three and five working days to complete.
The recent boost could be explained by the company’s recent announcement that xRapid could be launched commercially "in the next month or so," which was made by head of regulatory relations for Asia-Pacific and the Middle East at Ripple Sagar Sarbhai in an interview with CNBC on Sept. 17:
"I am very confident that in the next one month or so, you will see some good news coming in where we launch the product live in production."
In August, Ripple partnered with three international crypto exchanges — U.S.-based Bittrex, Mexican Bitso and Philippine Coins.Ph — as part of an xRapid solution to build a “healthy” ecosystem of digital asset exchanges. The new partnership will enable xRapid to move between XRP, U.S. dollars, Mexican pesos and Philippine pesos. Additionally, Ripple is considering entering the Chinese market to apply its distributed ledger technology (DLT) to cross-border payments, as Jeremy Light, vice president of European Union strategic accounts at Ripple, told CNBC on Aug. 15.
To explain XRP’s recent breakthrough, some Reddit users suggest that xRapid has been quietly launched, while Ripple is going to announce it at a later stage. “I think they are letting banks in one by one so the XRP markets would not go totally ballistic if everyone jumps in the same time”.
“Because of the volume and books [are] being eaten alive, leaving no corpses behind (except fudders), I wouldn't be surprised if xRapid is in use. People try to sell, but it comes back up and this volume is off the charts and is increasing. If it's just investors, then [a] new market opened somewhere with lots of people trading suddenly, which is less likely,” another user agreed. Either way, an official xRapid launch would be big, positive news for XRP.
Theory 2: PNC joining RippleNet
More concrete Ripple-related news this week came from PNC, one of top ten largest U.S. banks with 8 million customers and retail branches in 19 states. On Wednesday, Sept. 19, Ripple announced that PNC had joined RippleNet to process international payments for its customers. “It’s one of the first major U.S. banks to use blockchain tech to streamline payments into and out of the country.”
RippleNet is a decentralized network of banks and payment providers that connect through Ripple's solutions, such as xCurrent. Specifically, a particular PNC unit — Treasury Management — will use xCurrent to speed up overseas transactions held by U.S. commercial clients.
Ripple emphasises that the solution will allow PNC business clients to receive payments against their invoices instantly. Senior vice president for product management of Ripple, Asheesh Birla, thinks that using xCurrent in banking is the first step toward the adoption of other Ripple products, such as xRapid. "It's a way [for the banks] to get their toe into the water,” Birla told Reuters.
Notably, xCurrent — unlike xRapid — doesn’t cut out the corresponding bank from the entire process, thus not quite changing the conventional system but rather modifying it. The latter uses immutable “interledger” protocol, which “is not a distributed ledger,” as confirmed by David Schwartz, Ripple’s chief cryptographer, who was sceptical about banks using xCurrent in cross-border payments. David Schwartz declared banks were unlikely to deploy the technology because of low scalability and privacy problems.
Nevertheless, the news proved to be bullish. Interestingly, BlackRock Inc., a major American global investment management, used to be a subsidiary of PNC during the period of 1995-1999. Currently, PNC is BlackRock’s largest shareholder, owning a 21.45 percent stake of the company.
Theory 3: Ripple dodging the ‘security’ label
In a recent interview with CNBC, Sarbhai countered concerns that XPR is likely to come under a security classification in the U.S. — as several high-profile and ongoing lawsuits allege.
To defend the company’s native token, he pointed to the open-source protocol of the XRP ledger and its independence from the corporation itself, emphasizing that Ripple controls only seven percent of the validator nodes operating on the network. He further argued that XRP investors do not secure a stake or shareholder-like position when they purchase the asset and emphasized that countries such as Australia, the Philippines and Thailand have all classified XRP as a commodity.
Thus, similarly to Bitcoin and Ethereum, XRP might potentially become recognized as a “non-security” by the U.S. Securities and Exchange Commission (SEC), which has proven to be bullish for those cryptocurrencies in the past.
Theory 4: FOMO
The massive surge in price could also be explained by good old ‘fear of missing out,’ or FOMO — a particularly powerful force on the crypto market. This seems to be one of the main sentiments on Reddit. According to this theory, as soon as Ripple experienced the first pump on Sept. 18, other investors started to pile in, and the situation snowballed from there.
In another major milestone for cryptocurrency adoption, United States bank PNC will begin using RippleNet to process international payments for its clients.
Ripple made the announcement on Sept. 19, stating that PNC’s Treasury Management unit will be using its xCurrent software solution to expedite cross-border transactions for the bank’s U.S. commercial clients.
According to initial reports, xCurrent will allow PNC clients to receive payments instantly, which will change the way companies approach cash flow and account management. The software allows banks to communicate instantly, to confirm payment both before and after a transaction is initiated.
Flippening
As a result, the price of Ripple soared over the next few days, seeing as much as 15 percent gains in overall market capitalization.
On Friday, Sept. 21, XRP moved past Ethereum to become the second biggest cryptocurrency by market cap, at around $23 billion.
Building blocks
According to initial reports, Ripple considers the move as a necessary first step in order to get banks and financial institutions to eventually use xRapid — its liquidity product that uses Ripple’s digital token, XRP.
Ripple’s product management senior vice president, Asheesh Birla, says xCurrent is “a way to get their toe into the water.”
These sentiments follow comments from Ripple’s chief cryptographer David Schwartz, who said in June that banks were unlikely to adopt blockchain systems to process international payments in the near future.
Schwartz cited concerns around privacy and scalability as a big worry for banks. Until there is a solution that completely meets these needs, big banks are unlikely to go all-in on distributed ledger technology (DLT).
Ripple’s xCurrent protocol is essentially an immutable interledger which allows instant settlement, which is an upgrade to current payment networks. But as Schwartz pointed out, it is not a distributed ledger.
With that being said, PNC has joined a number of major financial institutions that have partnered up with Ripple in various ways.
In August, Ripple expressed interest in breaking into the Chinese market in an effort to speed up international payments.
Optimistic October
Ripple is hoping to launch a commercial version of xRapid as early as October. The company had previously partnered with Bittrex, Mexican Bitso and Philippine Coins.Ph in order to facilitate xRapid to move between XRP, U.S. dollars, Mexican and Philippine Pesos.
Ripple’s pilot of the xRapid system in May 2018 reportedly produced savings on transactions of up to 70 percent, in addition to the increase in transaction speeds.
Justin Sun, founder of TRON, said that he foresees other banking institutions following in the footsteps of PNC by adopting blockchain systems like RippleNet:
“XRP’s surge shows PNC Bank’s recognition of the Ripple protocol. With Bill Clinton keynoting Swell 2018, blockchain is going mainstream. As Ripple’s Greater China Chief Rep from 2014-16 and a Ripple shareholder, I’m confident financial institutions will adopt blockchain.”
Kieran Kelly, a long-term investor of Ripple, who believes the move is a massive step toward the adoption of Ripple:
“Ripple is adding a bank per week to the network and RippleNet is live in 40 countries and six continents. PNC being the most recently announced bank shows that Ripple is making huge progress globally toward mainstream adoption, providing cheaper, faster and more transparent payments.”
As Kelly points out, the speed of RippleNet is an attractive proponent of the technology, which could speed up international money transfers:
“The traditional finance sector is already implementing blockchain as part of RippleNet and the considerable benefits will drive further adoption globally. Ripple provides banks the ability to make frictionless remittances in three seconds at little cost versus the current format — i.e., SWIFT — which takes three to four days. Banks save 60-70 percent with Ripple.”
Others weren’t as confident about Ripple massive surge in value this week. A quick glance at Twitter made for some interesting reading, as some users offered more skeptical views on the cryptocurrency’s pump in value.
Nicholas Merten, founder of Youtube channel Datadash, suggested that the spike in value was mainly due to traders — not big money investors — climbing into the market:
Congrats to the traders on $XRP, gotta hand it to the bulls. But don’t be mislead, the volume we’re seeing is NOT banks buying the XRP token for xRapid. It’s purely whales and retail traders ATM.
Ripples tech - Impressive
Ripples token - Slight value for use in transactions
— Nicholas Merten (@Nicholas_Merten) September 21, 2018
Matthew Newton, an analyst at eToro, said that XRP was the flavor of the week after the announcement of the PNC partnership:
“Despite being one the most polarizing cryptos of them all, eToro customers can’t get enough of XRP at the moment; it has more exposure than any other asset on our platform. As we’ve seen in the past, the price tends to move in short, sharp bursts, picking up a lot of momentum when the hype builds. It remains to be seen how much further it could go."
As we have seen in the past, perceived good news often drives investors sentiment, and this is clearly the case when it comes to XRP.
The next few days will determine whether the cryptocurrency’s newfound gains will hold strong. Following that, the crypto community will be eagerly awaiting the touted launch of xRapid next month. With these foregoings, the huge question still remains will Ripple (XRT) unseat Ethereum (ETH) ?
