Is XRP Too Fast to Be Worth Anything?
Jul 28, 2018
Ladies and Gentlemen!! Grab your loved ones, gather round, and prepare to be amazed at the incredible non-stop hilarity of the one, the only, the AMAZING NONSENSE ZOMBIE FUD CAMPAAIIGNNNNNN!!!! (cue in the clowns)
do do doodleoodl do do doodoo....do do doodleoodl do do doodoo
Can it even be possible that the latest and greatest threat to XRP's increasing valuation, is the very thing that makes it the top performing asset in the world?? It's too fast now?? So are they going to reduce the horsepower in Lambos to make them more valuable?? Must... eat....brains...
Where to begin, I can't even uncross my eyes yet.
Ok, so here's the stupacity campaign that seems to be picking up speed. APPARENTLY, XRP is SOOO fast, that it can be utilized by banks in under 5 seconds, so it's not off the market very long before it's thrown right back into the market. Any scarcity that may have been created during this transaction is obliterated at the end of it; hence, XRP won't go up in value!
Sounds reasonable on the surface, correct?
And here we go..
The first important thing to understand is that the market price of XRP (or any asset for that matter) is SOLELY determined by "supply" versus "demand". These two parameters are the aggregate of every single other force you can think of, such as perceptions of escrowed coins, bank uptake, good or bad news, etc., etc. Everything that influences the price coalesces into the forces of either Supply or Demand. Thus, you can look at the order books at a major exchange to get a good idea of the real-time current sentiments for XRP. If there are a lot of sellers but few buyers, price typically falls, and vice versa.
More importantly though, there's the concept of "depth" to an order book, meaning how much "money" is being offered on the books. To really break it down, let's use a super simple example: Say there are 3 sellers of XRP, each selling 100 XRP. The cheapest guy wants $1 per XRP. The second guy wants $2 per XRP. The third girl wants $3 for her XRP (give me shit, I dare you). If I wanted to buy 100 XRP, well luckily the cheapest guy has all I need, so it costs me $100, great! If I instead wanted 200 XRP, well now I have to pay $2 per XRP for the second hundred for a total of $300 to get 200 XRP. Getting expensive. But what happens if I need 400 XRP? I literally cannot fill that order, and if this purchase was through ODL (On-Demand Liquidity), my transaction would fail.
This is called "slippage", where the more you want to buy (or sell), the more expensive it gets because you are eating up all the cheaper offers and digging into the more expensive offers. The result is, as you consume an order book, the price changes to match the highest cost part of that purchase. Effectively, large purchases on the source exchange (or via market makers) makes the price go up there. Large sales on the target exchange (or via market makers) make the price go down over there. Most importantly, these large transactions put a relatively longer-lasting 'dent' in the price, in that the price doesn't typically bounce right back to where it was. On a chart, a large transaction appears as a steep 'wall' where the price changed significantly in almost no time, and the price is now hovering at the new price. It may slip back, but never as dramatically as it moved from the transaction, aka "stickiness".
So now that you understand the concept of slippage, and how large transactions can change the price, here's a more thorough breakdown of what factors affect market value, from a technicals point of view (which incorporates every single influence to the markets)
If supply and demand are the two factors driving price, then increasing 'scarcity' (and hence value) of a coin is facilitated by increasing demand and/or reducing supply.
There are multiple factors that contribute to scarcity:
1) REMOVAL. Yes, taking XRP off of the exchanges (either for safekeeping, or utility purposes) is the number one recognized method for increasing price. If people are fighting to get their hands on XRP but there's only so much available on the exchanges, then of course they'll have to pay more for them. The FUD campaign going around now suggests that ODL only takes XRP off of the exchanges for a few seconds, thus there will always be XRP available to meet demand. Pffft... If you're an amateur, sure, I can see how you'd think that. What you're missing is:
2) SLIPPAGE caused by large orders also drives scarcity (market makers can only absorb so much). Think about it. One large order of a few million dollars can probably wipe out a lot of today's order books on the exchanges, sending the price into sharp climbs. That's just one large order. It doesn't matter that this pile of XRP winds up back on the market on a different exchange in a few seconds, wiping out that exchange's buy-side. The point is, all other things being equal, if the need for larger and larger XRP purchases keeps increasing, the value of XRP must keep increasing in order for the large transactions to even be possible in the first place. If the transaction is too large, there won't even be enough XRP available, thus, a market for lots of EXPENSIVE XRP opens up because of the need to fulfill these large orders, driving the price up.
Because of both the minimum value needed to support large transactions, and the effect of "stickiness" of sharp price changes, the increasing need for ever larger XRP purchases will overwhelm the price balancing effects of their subsequent sales, irrespective of how quickly these transactions take place. Multiply large transactions by 1000s per second, and now XRP has to also be worth 1000s of times more just to be able to simultaneously service these transactions. Compound the servicing effect with the fantastic exponentiation of transaction volume by the laws of Jevons paradox, and kaboom!
It's a flawed argument to assume that transaction volume can't be so high that even 3-4 seconds encapsulates a very large number of simultaneous XRP purchases and sales. Also remember that 3-4 seconds you read about is ONLY the ledger time, it's not including buy and sell times on the exchanges, which may actually push the overall transaction into the minutes range.
3) BURN RATE. Insignificant, but contributes to scarcity nonetheless
4) DIRECTIONAL FLOW. If one exchange is used more as a source, and another exchange used more as a destination (e.g. remittances), then this drives the price even higher (at least regionally) due to the latency of arbitrage. Yes I know we're talking about mere seconds, but this entire conversation is nestled in that short window, and within this short window a few seconds make a monstrous difference in availability, aka scarcity. Even regionally higher prices drives further speculative investment because speculators tend to focus on the highest global price as some form of indicator for potential. (elaborated on in #6).
5) DIVERSITY. Anybody that says XRP is dependent upon ODL to survive, or that XRP wasn't designed for everyday use, needs to take a long walk in the woods. You're not needed, and you're weighing down humanity's IQ. XRP's valuation will come from the demand of thousands of yet-to-be-realized use-cases that full adoption will represent. Xpring is the evidence that XRP's dynamic purpose will be fully explored, creating endless new forms of "demand" for XRP, increasing its scarcity, and hence its price.
6) HOARDING. Does anybody really think that there won't be significant XRP hoarding to drive scarcity? It's fine to discuss pure utility value and say, "well, in times of low volume for low value transactions, there will be no scarcity created", but how is that isolated hypothetical scenario ever going to be possible in reality? Reality is, lots of hoarding, maybe a short window in the near future where a few ODL transactions are occurring with no impact on price (and the zombie's celebrate), and then the shit hits the fan and the price takes off, kaboom! Enjoy your ten minutes of being correct, morons.
Moreover, it will actually BE hoarding that continues to pump up the price so that larger and larger transactions will be possible. Every time a new plateau is reached, further speculative purchases are made, giving another pump, and then even larger transactions can take place, encouraging even MORE speculative purchasing, which again increases the price, increasing transaction size, speculation, increase, larger, spec inc lar, sil,.. It's the symbiotic relationship between large purchases to validate/justify the increasing price of XRP, and the continued push of speculators, that will allow XRP to find its true value.
7) PERFORMANCE. The absolute kicker about the "too fast" FUD, is that it flies directly in the face of what will actually drive demand for XRP, and that is the fact that it IS SO FAST! (and cheap) Nothing can remotely touch the sinister purr of the finely-tuned 100-billion-horsepower XRP. Banks have rivers of drool running down their laps fantasizing about XRP taking its clothes off for them, shoving profits in their faces, rubbing that fine piece of ledger all over their bottom lines. Oh ya baby, you know how I like it.
Performance equals demand equals scarcity. Notice the period at the end of that statement.
For this FUD to focus on just the transfer time is to dishonestly ignore the other pieces of this value equation, VOLUME and TRANSACTION SIZE! The crux of it is that critics claiming that XRP can't rise in value due to its velocity is grossly misleading because they are limiting their scope to small and few transactions (presumably because their real-world comparison is the pathetic 10 transactions per second limit that Bitcoin is only capable of), which is anything but a realistic viewpoint given that full ODL adoption by banks, other FIs, and other-than-banking industries (shipping, remittances, retail, etc.), could very well lead to tens of thousands of transactions per second, meaning in a 4 second window, an incredible number of simultaneous XRP transactions are in-flight (off the market), creating market scarcity. And don't forget that my buddy Jevons is also showing up to the party ;)
People that spread this preposterous FUD because they can't see the huge potential number of transactions per second, are blinded by their being accustomed to shitty Bitcoin throughput. They have yet to understand the renaissance that Cobalt will represent compared to medieval Bitcoin.
I know that feeling of wanting to sink your teeth into the face of the enemy, making them watch as you swallow their cheek, but the zombie wars won't be necessary because the effectiveness of this and any FUD is mostly diluted in impact in this polarized speculator market. In other words, lots of name-calling going on, but the teams are entrenched now, and we're all just waiting to see what happens next.
The Big Boys of finance are taking their time getting their house in order, and they are far too busy to read clickbaity shit articles, or watch douchebag videos. When they come, they'll put everything in a spreadsheet to chart their decisions based on cold heartless math and discover quite on their own that XRP is the only choice, because when it comes to really big money in a real world with real laws and real zombie barricades, only XRP shines like the sun.
Comments (but no tips please!) are welcome on Twitter. Please note, for brevity's sake, I will 'like' most comments unless you are asking a specific question. Know that I am very appreciative that you took the time to leave a comment.