Could XRP's Frenzied Rise Herald Future Growth?

Chris Brookins is the founder of Valiendero Digital Assets, a blockchain and fintech focused VC firm.

The author invests in cryptocurrencies and has a position in XRP.

It's no secret the crypto space is in a speculative "frothy" frenzy currently.

Under these circumstances, fundamental analysis becomes less important. Speculators are trading on emotion and greed, not fundamentals. Such is arguably the case with XRP, the native token that powers Ripple's RippleNet ledger.

Over the last month, it has blown up by almost 1,400 percent, and it's showing no signs of slowing.

Amidst this short-term frenzy, however, there is also opportunity for long-term analysis.

When we made a trading recommendation on XRP to our investor network last month, we stated that despite XRP’s long-term hurdles, its 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. We thought Ripple had great company fundamentals and that XRP’s speculative investment potential was ripe for high risk and high reward.

Short-term analysis

Looking ahead, Pugilist Ventures maintains both its speculative fundamental evaluation and its positive short-term trading view for XRP; simultaneously.

While Ripple may be overbought, that doesn't mean the market won't keep buying. In short, 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.

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 its xCurrent and xRapid products in both exotic and non-exotic corridors.

Reflexivity for XRP

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.

Reflexive price appreciation may substantially increase demand and mainstream adoption for XRP. For example, imagine if XRP supersedes bitcoin’s BTC$89,334.75 market cap in 2018.

This speculative demand spike would dramatically increase liquidity and potential derivatives coverage, which would help Ripple onboard more banks (fewer objections to adoption) onto xCurrent + xRapid, thus improving XRP’s fundamentals, i.e. the path to QRC status.

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.

Disclosure: CoinDesk is a subsidiary of Digital Currency Group, which has an ownership stake in Ripple.

Ferris wheel image via Shutterstock