It has been a while since my last blog about Ripple and XRP, so I decided to write about how the volume of trades caused by FI's, companies and banks would influence the price of XRP.
I've seen a LOT of tweets and posts with negative comments regarding the position of XRP for banks. Some seem to be really disapointed by the fact banks don't 'have' to hold it. I really don't understand why people are limiting themselves thinking only 'if people hold' would be positive for the price. This is a misconception.
By allowing banks to not hold XRP and still be able to use xRapid, Ripple manages to include potential customers to their business that would otherwise stay away. Know that some countries do not allow banks to hold crypto and some boards refuse to believe in crypto too. By allowing xRapid for banks and FI's without 'holding' this means banks will not be subject to price volatility that would otherwise potentially bring certain costs on paper by date-valuation that would affect their numbers. Conservative banks that would otherwise feel 'left out' can now safely participate in innovation.
In addition to that, not being 'forced' to hold XRP would allow banks to avoid realising a loss on their XRP investment. How? Well, if a bank/company of FI buys XRP for 1$ and the price goes to 0.80 cents, they can 'keep' their XRP untouched and buy the XRP needed for the transactions during the time the price is below their original buy in price - meanwhile they can accumulate more XRP to lower their average buy in point. When the market goes above 1$, they can use XRP and generate a profit from their first investment, and they will need to restock eventually after using up their XRP holdings. Either way, a bank will only realise profit and never realise a loss by doing smart investments and usage - restock when the market is down, usage when the market goes up.
Volume makes the price go up..
Now the second part: Why would XRP's price go up if a bank just buys and sells XRP in the 4 seconds of settlement? Wouldn't the 'dump' of the sell kill off the momentum it caused by buying XRP in the first place? No - it wouldn't. If this is your train of thoughts, you are missing one key point into it: missing the part that every time you sell it is considered a purchase on the other side, and every purchase you make means someone sold to you. Let's be real about it: we don't sell below our investments unless forced or during a crisis, the same applies to everything in economics. You don't buy car-parts for 200$ to sell it for 150$ to customers. So, the market maker who 'bought' the XRP from the bank, is not going to sell it below the price it bought it for, so the addition of an incredible amount of volume by usecase would generate a growth in the market based on the nonstop usage. It has been said that xRapid will search all exchanges and determine the lowest price to buy the XRP needed for the transaction and sell it into the fiat needed to complete the transaction on the other side. They will not sell it below the price of what they bought it for, so by definition it would mean that the price would move up. Volatility will lower, the growth will be steady and every 'dip' would mean there is an opportunity to buy more XRP to stock up if needed.
Volume is 'key' to the price since it indicates an ongoing demand. With an ongoing demand that is calculatable, the supply of it is able to ask for a sharper price - since the price of XRP doesn't affect the usecase in a negative way, even better, the price movement upwards would be beneficial for everyone (less XRP needed to move an X amount of money - XRP is a vessel of value, the bigger the price, the more it can carry).
The only thing that would slow down the gains of XRP would be temporarily caused by the banks selling off amounts they are holding - until they need to restock. This gives a nice fluctuation in the price, causing small ups and downs where banks can make their moves accordingly.
This is just the 'usecase' part - adding to that comes speculation and trading just like we see in all the other crypto's, currencies and stock.
Hope this clears things up!
Did you like this post by Mr. H?
Send some love:
Subscribe to XRP Community Blog
Get the latest posts delivered right to your inbox