Can Ripple's Recent Market Cap Surge be Justified?

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Ripple has experienced an exponential increase in its market cap in the past few months. To be exact, Ripple’s market cap rose 60x in the past 60 days. However, a very few number of so-called “crypto-investors” and traders seem to understand why Ripple has experienced such rapid surge in its market cap.

A recent analytical blog post of Japanese investor and co-founder of IndieSquare Koji Higashi provided a rational explanation for the surge in demand for Ripple. Higashi wrote:

“Another thing to note about this new trend is that the general lack of understanding or appreciation of the technology by many of new users. This is no surprise and all of us have been there at one point but the new wave of Japanese investors seem to be exhibiting a whole new level of incomprehension and misguided decision making in my opinion. Many of them don’t bother researching what those coins do, nor what they are useful for but rather follow whatever they hear in exchanges’ chatrooms.”

Speaking to local investors in South Korea and Japan, the description of Higashi on the two Ripple exchange markets seem highly accurate.

Quite simply, Ripple is benefiting from a short-term snowball effect it has created by offering a flexible financial network for banks and financial institutions. Currently, the Bitcoin network is struggling to deal with an explosive growth of daily transactions and mempool size. Because of the issues with Bitcoin’s scalability, investors have begun to look for other alternative cryptocurrencies or altcoins to add to their portfolios. Ripple’s partnership with some of the world’s largest banks including BBVA further validated the value of XRP to most investors, who continue to believe that Ripple is a serious contender to bitcoin.

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Beginner or casual traders who have limited knowledge in cryptocurrencies and the structure, philosophy and technical specifications of some blockchain networks such as Ripple, are easily moved by announcements involving multi-billion conglomerates and leading b corporations. Hence, when investors heard BBVA’s involvement with Ripple, despite the lack of any sort of commercial success or Ripple’s commercial application for existing BBVA customers, new investors are easily convinced.

However, the technical description of Ripple is rather ambiguous. Advocates of Ripple including Tiffany Hayden have explained Ripple as “an open asset ledger, payment network and distributed exchange,” while denoting bitcoin as a “closed asset ledger and payment network.” If the terms open and close refer to decentralization and centralization, it is evident that the Ripple network is the furthest public blockchain from decentralization, as its development team has enormous control over the network.

A recent example of such monopoly over the network is the decision of Ripple, as a commercial company, to lock $14 billion of its native currency or XRP to control its price. In an interview with CoinDesk, Ripple CEO Brad Garlinghouse stated that Ripple is locking $14 billion of XRP to stop the market from “potentially lowering the price.”

Moreover, Ripple’s marketing team has been pushing a rather aggressive campaign to capitalize against Bitcoin’s current scalability issues. In an email, Ripple representatives consistently criticized bitcoin’s approach to provide a decentralized infrastructure and financial network. Instead, the Ripple team has clearly been stating that providing blockchain network or infrastructure for existing centralized institutions in the right approach, rather than providing an alternative infrastructure like Bitcoin that is actually decentralized.

A Ripple representative said in a personal email:

“If you’re looking for more commentary, happy to connect you with Ripple [executives] who have a strong opinion to share on where Bitcoin is getting it wrong and why banks aren’t going away.”

Yet, ironically, on May 13, Ripple CTO Stefan Thomas stated that Ripple will become more decentralized that bitcoin.

“As we continue these initiatives to further decentralize the system, RCL will inherently become even more resilient. A key benchmark that we aim to achieve is to become more decentralized than Bitcoin, which at the time of writing is 51% controlled by just five mining pools,” said Thomas.

Overall, it seems as if Ripple’s recent 60x jump in market cap and price can’t be justified based on current circumstances.

Disclaimer: The views expressed in the article are those of the author and do not represent those of, nor should they be attributed to CCN.

Featured image from Shutterstock.

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