XRP: The Dichotomy of Ripple

WTF is going on with XRP?

Over the past month, Ripple (XRP) has blown up by almost 1400% and is showing no signs of slowing despite periodic pullbacks.

* Poloniex chart

Long Term XRP Fundamental Analysis

Pugilist Ventures released a 19 page report in early December 2017 analyzing Ripple (the company) and native asset (XRP). We highlighted Ripple’s great company fundamentals and XRP’s speculative investment potential — high risk and high reward.

The fundamentals in the case of XRP are basically its long term probability of becoming a quasi-reserve currency (QRC) for financial institutions. We say “quasi” because we do not believe central banks will ever fully relinquish their local currencies without a fight. The path to QRC status will need to include demonstrable growth within the following areas:

  • Liquidity and market makers
  • Institutional derivatives that would allow banks to hedge foreign exchange exposure on their balance sheet
  • On-boarding financial institutions onto xCurrent + xRapid in both exotic and non-exotic corridors

Short Term XRP Trading Analysis

The crypto space is in a speculative “frothy” frenzy currently. Under these circumstances, fundamental analysis becomes less important in the short term since speculators will trade on emotion and greed compared to fundamentals. Pugilist made an XRP trading recommendation to our internal investor network right after we released our report last month. We stated that despite XRP’s long term hurdles, their price action and technical analysis charts were setting up nicely for a price spike. At that time, XRP was trading between $0.25 — $0.30. We did not forecast a specific price target given we don’t own a crystal ball, but we did see an interesting dichotomy forming.

Dichotomy

Pugilist Ventures maintains its speculative fundamental evaluation AND positive short term trading view for XRP; simultaneously. Furthermore, if XRP maintains its exponential growth during 2018, then its long term fundamentals may change for the positive according to the Theory of Reflexivity a la George Soros.

Reflexivity Theory

By simple definition, Reflexivity is a three part process whereby an asset’s price increase drives investor expectations higher which positively changes the asset’s fundamentals, resulting in further price appreciation. Rinse and repeat.

Reflexivity for XRP

Reflexive price appreciation and expectations may substantially increase demand and mainstream adoption for XRP. For example, imagine if XRP supersedes bitcoin’s (BTC) market cap in 2018. This speculative demand spike would dramatically increase liquidity and potential derivatives coverage, which would help Ripple on-board more banks (fewer objections to adoption) onto xCurrent + xRapid, thus improving XRP’s fundamentals, i.e. the path to QRC status.

Summary

XRP is being driven primarily by speculation in our opinion. However, this speculation may actually increase the long term probability of success for XRP by increasing market liquidity, derivatives coverage, and mainstream adoption as medium of exchange and store of value; while planting the seeds of a future QRC debate. All of which provide fuel to Ripple’s most important business goal of growing financial institutions using both xCurrent and xRapid for global payments. Only time shall tell if this path bears fruit for Ripple and XRP.

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Disclaimer: Neither the author of this article, nor Pugilist Ventures, provide investment, financial, or legal advice. The content provided is for informational purposes only and should not be construed as any kind of solicitation for investment in any investment opportunity.

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