The Independent Republic

Ripple (XRP)–MoneyGram. Two new XRapid (i.e. XRP-integrated) partnerships with IDT Corporation and MercuryFX. Coinsquare adoption. The very real possibility of two more household-name, money-transfer firms on the near horizon. All of this good news, and yet, the price of XRP has struggled to trade outside of the 1.25 – 1.30 USD range, marking a relative low in price since Ripple went on a bull-run in early December.

Yesterday we examined what could help the price of XRP take off again. But what’s going on with the stagnating price of Ripple, despite all of this positive press and real-world integration?

Large XRP Supply = Difficult to Generate Demand

Ripple both benefits and suffers from its large max supply of coins. Compared to Bitcoin, which is capped at twenty-one million coins (being released at regular intervals through mining), Ripple has a circulating coin supply of 38 billion. That’s roughly 1800 times the amount of BTC, not including the additional 55 billion XRP locked up in escrow (which will be released in 1 billion XRP increments each month–subject to certain conditions).

On the positive side, it keeps the price-per coin of XRP lower than levels like Bitcoin and Litecoin, which creates an attractive price-point for ownership if it were to be adopted by certain commerce-giants like Amazon. It also creates an abundant supply useful for liquidity–which is the intended purpose of XRP. While Ripple is a good investment for the average-cyrpto enthusiast, the currency was originally designed, and is still marketed as a solution for expensive, sluggish bank-to-bank transfers. The adoption of XRP by money-transfer firms (such as the aforementioned MoneyGram and, potentially, Western Union) is an extension of the utility offered to big banks and other financial services such as the American Express announcement last November. Ripple needs significant liquidity (hence the large supply of coins) to be useful for these companies, whose monetary transaction volume is in the trillions of dollars annually.

So while the average investor has access to a low-priced, highly liquid cryptocurrency, the end result is that the market is flooded with XRP, particularly when compared to a coin like Bitcoin. BTC is scarce and built on scarcity, which leads to sharp and sudden leaps in price. Just about every crypto-investor associates this precious scarcity with Bitcoin (the twenty-one million coin supply being as symbolic and attractive a feature as the comfort of U.S.-backed dollars), which lends to its inherent value and more importantly, ability to generate value.

Prices, even in the world of crypto, work largely off of supply and demand. If more people want Bitcoin than those currently willing to sell, the price goes up. Let’s say you have 100 investors in Bitcoin, have of which are buying and half of which are selling. All of the the buyers want to get in at the cheapest price, so they attempt to buy BTC for 10,000 USD per-coin. However, only ten sellers are willing to part with their precious coin (or fraction of a coin), at that price. The rest will only sell at 11,000 USD. So now, 80% of the buyers are forced to purchase BTC at the 11,000 USD price-point, or else forego their investment. The net result is that the price of Bitcoin rises, creating a new and higher base price point for sellers and forcing buyers to either up-the-ante or else wait for the market to make a turn towards their attractive price point.

The above scenario occurs with Ripple, however, there are many more coins to be sold. Let’s ignore for a moment the fractional effect of cryptocurrencies (which could skew the amount of buyers and sellers), and focus on the amount of XRP able to move in a single day. It takes a lot of buyers and sellers, much more than what would be required for BTC, to skew the supply/demand curve to favor the increase in price of XRP. So while announcements like MoneyGram may be significant, driving massive interest and publicity to Ripple, it does not instill in investors the same demand and scarcity that Bitcoin has. People know there is a large supply of Ripple, they know the price is going to move slowly (again, relative to a currency like Bitcoin. Crypto prices are still the wild-west when compared to the traditional stock market), and because of that, they are willing to hedge their investments in other currencies while the demand for Ripple builds.

Focus on Ripple’s Strengths

There seems to be a general disappointment, even frustration, among Ripple investors at the lack of price-movement accompanying large announcements and partnerships. Instead of bemoaning the impact of a large coin-supply, look at the benefits. Ripple is able to have a much broader presence in the financial world than a currency that instilled the scarcity mindset of an asset like gold. It also creates significant liquidity for these applications, which is leverage many later-generation currencies (such as Tron, IOTA and Cardano) have recognized and incorporated into their model. Supply and demand is a tricky concept: you can’t make people want something. However, the more partnerships Ripple forms and the greater use it demonstrates in the financial sector, the more desirable XRP becomes. So while fewer investors today can see the benefit in owning thousands of a coin that is high in supply and lower in demand, that same myopic thinking could, and will, lead to missed opportunity over the course of a year. There may be uses for Ripple that are only just now being formulated as ideas in the minds of its implementer. Those yet-to-be-thought-of implementations will hinge on the very same liquidity that plagues the current price point, while also relying upon the other attractive features of XRP: near-zero fees and transactions under five seconds.

At the very least, XRP’s growing adoption in the financial sector signifies the currency has the interest of very powerful players–banks, money transfer firms, financial services and credit card companies. Disruption is one of the most bandied about words in the mecca of Silicon Valley. Bitcoin is a potentially disruptive technology to government fiat. Ripple has already proven to be  a disruption in the financial sector, even if most of the long-entrenched players are just waking up to that idea.