The price of XRP has been trading sideways for a long time. Even after breaking out from one zone, it continues its sideways movement in another. Since July, for example, it has been trading largely between $0.48 and $0.65. This consolidation has disturbed many within the XRP community.
CryptoTank, a crypto analyst, addressed the persistent questions surrounding the stagnation of XRP’s price. He tried to clarify how XRP’s value is determined, especially for newcomers to the cryptocurrency space who might be struggling to grasp the intricacies involved.
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The Role of Liquidity and AMM Pools
CryptoTank explained that the price of XRP is calculated by dividing the value or volume on the ledger by its circulating supply. However, he cautioned that determining the circulating supply is not straightforward.
While a quick search might indicate that approximately 56 billion XRP are in circulation, this figure can be misleading. He pointed out that not all of this supply is actively available on the ledger; a significant portion remains held in private wallets, controlled by large holders, or stored on exchanges.
He estimated that only about 20% of the total supply is actively used on the ledger at any given time.
For illustrative purposes, CryptoTank proposed that if around 10 billion XRP were active on the ledger daily, one would also need to consider the liquidity in Automated Market Maker (AMM) pools. He suggested that banks and financial institutions would utilize their own tokens or Central Bank Digital Currencies (CBDCs), pairing them with RLUSD for transactions.
The XRPL (XRP Ledger) employs an algorithm to identify the most efficient source of liquidity for settlements, favoring XRP unless a better alternative exists.
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The Future of XRP Valuation
To put the scale of potential transactions into perspective, CryptoTank referenced the daily settlement volumes of major financial institutions: Swift processes about $5 trillion, J.P. Morgan around $10 trillion, Bank of America between $7-8 trillion, and SBI Japan approximately $2 trillion.
This adds up to around $25 trillion daily in settlements from just four institutions. He noted that Ripple has over 1,700 non-disclosure agreements (NDAs) with partners, of which only a fraction is known.
By considering just 10% of the aforementioned settlement value on the ledger, CryptoTank estimated that $2.5 trillion would need to be in AMM pools. To ensure there are no failed transactions—something banks cannot afford—he suggested that the actual value in these pools should be around $5 trillion.
From this, he deduced that for XRP to facilitate daily settlements without friction, its price would need to be approximately $500, based on the assumption of 10 billion XRP in the pools.
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Show more +XRP Retail Interest and Market Cap Are Less Relevant
CryptoTank emphasized that the future use of XRP for daily settlements hinges on achieving a high price. He argued that traditional metrics, such as retail interest or market cap, are less relevant than understanding the liquidity requirements needed to manage the settlement of numerous agreements.
He concluded his remarks by expressing hope that this explanation would provide clarity on XRP’s pricing dynamics as its utility continues to evolve, reiterating that the potential for XRP’s value hinges on its capacity to handle large transactions swiftly and cost-effectively.
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