Sirwin
Sirwin

Is the game over for the banker's coin? Part 1

By paragism | paragism | 20 Dec 2020


Almost three years back, XRP reached its ATH of $3.4. I remember that I bought some XRP in December 2017 and sold at 5X price just within one month. The banker's coin was the talk of the crypto world at that time. Even the mainstream media was getting flooded with bullish news regarding XRP. Ripple was making a lot of bank partnerships and the buzz was that many enterprises would use XRP to get instant liquidity needed in a high-value transaction, without paying high fees. XRP transactions were extremely fast as per the then standard and crypto twitter had gone mad with the idea that XRP would act as a bridge between fiat currencies during a transaction. Ripple kept on making partnerships with banks and financial institutions. The price of XRP also soared up continuously. Yes, that was a stupendous alt season where Bitcoin dominance of the cryptocurrency market hit its lowest level ever. People were looking for alternative digital assets beyond bitcoin and the ICO boom was at a peak. FOMO was driving abnormal price rally for many assets.  2017 cryptocurrency bull run came to an end and XRP price also dropped along with all other major cryptocurrencies. The hoopla was over.

“The technology we have developed, it separated a connection from the cryptocurrency or the token. So what that means is that a bank or non-bank like AMEX can use Ripple to connect and just exchange value from one fiat currency to another directly, without the need for any intermediate blockchain currency……..The XRP currency will come into play later on in the evolutionary dynamics and the other players” – 2017 CNBC interview by Marcus Treacher, global head of strategic accounts at Ripple

Announcement of announcements and pumps

XRP keeps on pumping occasionally and the funny matter is that all major pumps are related to the announcement of trials with banks or financial institutions. Announcement pump games work in a particular manner in this industry. At first, a teaser announcement is made to announce that something big will come. Then the final announcement comes. Ripple has really done enough announcements to create an investment frenzy periodically. Maximum announcements are followed by organized pump events and then the whales prefer to dump. The market of 2020 is obviously a bit different from the market of 2017 and it is difficult to abnormally pump price of XRP with a bank partnership news.  Let’s digest a key fact that maximum XRP in circulation remains on the exchanges.

 

XRP/BTC all-time chart from Coingecko 

No! XRP is not needed

xCurrent and xRapid are two products from Ripple. The most adopted product is xCurrent. It is a gross settlement system which clears and settles transactions with extreme speed. Technically it is superior to the most popular SWIFT. The fast settlement is a disruption in the industry. But settlement can happen without the use of XRP too. So why should a bank use XRP? The usage of XRP reduces the transaction fee remarkably. Is it the ultimate reason to go ahead? Not really! Yes, many banks have signed up to use the digital payment system of Ripple but everyone is avoiding XRP due to its price volatility. It is really difficult to use a volatile asset for transferring funds for the only advantage of speed. The counter-argument is that the banks are exposed to exchange rate for cross-border payments and even the exchange rate fluctuation is very high. Quite right! But if we compare fiat exchange rate volatility with price volatility of a cryptocurrency like XRP, the logic of using XRP again seems to be insane.

 

A glimpse of Ripple customers from Ripple website

The never-ending ICO

It is important to note that there are 100 billion tokens available for XRP and 100% is pre-mined by Ripple. With no PoW and just a group of validating nodes, all these tokens were created during the initial days of the Ripple network. 45 billion tokens are in circulation now. The co-founders and the team members are holding an enormous number of tokens. The centralized exchanges are the gateways to conduct a never-ending ICO. Recently a Twitter user asked David Schwartz, CTO at Ripple, whether it was possible to burn the tokens held in escrow by Ripple if all nodes, validators, and the community came to a consensus. David gave a natural response that it was possible if the majority wanted. Now, the problem is that the team holds the majority tokens. Everything will be done with the objective of profiteering only and the team is quite happy to dump the team tokens in a synchronized manner to create wealth from the thin air.  In the meantime, some XRP bag holders have started petitions asking Ripple to stop dumping its XRP holdings.

WTF! Global freeze

Global freeze is a feature of the network. You can go through this bulletin post of Ripple Labs where they explain their global freeze feature. Ripple Labs can freeze individual accounts and can also freeze the whole network. The post says that “the freeze protocol extension gives gateways the ability to 1) globally freeze all their issued funds, or 2) freeze funds issued to a particular user. Frozen funds may only be sent back to the gateway who issued them.”  Ripple’s target customers are centralized financial institutions and thus they want to give them tremendous control on the funds. According to Ripple, this global freeze feature is required to comply with regulatory requirements. Ripple has made their payment infra-structure only for the banks and XRP has been designed as the banker's coin only. So what happens if the banks don’t accept it?

The banks have no solid reason to hold XRP for the long term. Nostro-Vostro relationship is very important for international money transfer and it is also a big problem for the banks to maintain operation without disturbing the relationship. The banks are already managing the fiat currency volatility by entering into the derivative market. If the large banks buy and sell XRP in a short time window to settle payments, there will be further market fluctuation impact on the price and the asset will become even more volatile. With the rise of stablecoins, XRP is losing the cross-border remittance game with a big blow. Does the future of the banker's coin look bleak?

<To be continued in the next part>

Note: This post was first published here for Cryptowriter in association with voice.com.

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paragism
paragism

Cypherpunk. Writing content which I love. Creeping on the blockchain. Twitter - @paragism_


paragism
paragism

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