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XRP Investment Thesis | August 19, 2024 | Sistine Research
Thesis Statement
XRP’s price will outperform most majors in the crypto market in the coming 24 months due to:
- US crypto regulatory improvement in the event of a Donald Trump presidential victory
- Legal battle resolution, ending a 4 year compression of price action
- RLUSD stablecoin adoption driven by US debt worries
- Improvements in XRP Ledger tooling enabling degen culture (memecoins and NFTs)
Additionally, many investor objections towards XRP are based on long-term price action underperformance, thus adding reflexivity to any XRP breakout.
(1) US crypto regulatory improvement in the event of a Donald Trump presidential victory.
Ripple has been battling a crypto-hostile SEC led by Gary Gensler since 2020, when they were initially sued for unregistered securities offerings. Donald Trump has taken an extraordinarily strong pro-crypto stance that includes firing Gary Gensler on day 1.
Given that both BTC and ETH ETFs have been approved, XRP is undeniably the cryptocurrency that has been most suppressed by the current anti-crypto SEC regime. A Trump presidency would end this regime, opening the door for RLUSD stablecoin approval and an XRP ETF.
(2) Legal battle resolution, ending a 4 year compression of price action.
The SEC sued Ripple in late 2020. The uncertainty around XRP’s status as a security has made it a less attractive investment over the past 4 years. Additionally, the SEC sought a $2B fine from Ripple, the size of which would greatly harm the company’s stability an future. On Aug 7, 2024, the judge reduced this fine on Ripple Labs to $125M. The SEC has until October 6 to appeal this decision. Ripple’s legal team is confident that any appeal would likely fail, with the ruling already setting a precedent for XRP’s status. Note that an appeal from the SEC before Aug 7 would likely temporarily push the price of XRP down. The resolution of this case alone is likely enough to restore investor confidence and end the multi-year compression of price.
(3) RLUSD stablecoin approval and adoption driven by US debt worries.
Ripple is currently testing their RLUSD stablecoin on XRP Ledger and on Ethereum while Ripple Labs awaits approval and regulatory clarity (a Trump victory would likely secure this). While the stablecoin space may seem crowded with Tether, Circle, and PayPal, Ripple is targeting a different market: cross-border payments. The market size for cross-border payments is ~$190 trillion, much larger than the current crypto industry offers.
According to the European Central Bank:
In recent decades, the world has witnessed a remarkable surge in cross-border payments, driven by the globalisation of trade, capital and migration flows. Global payments are expected to skyrocket from USD 190 trillion in 2023 to a staggering USD 290 trillion by 2030.[1]Despite such spectacular growth, cross-border payments remain prohibitively expensive and sluggish, leaving the most vulnerable behind. While domestic payments are becoming instant and digital, cross-border payments have yet to benefit from the transformative power of digital technologies. Fees for international payments currently average 1.5% for corporates and as much as 6.3% for remittances. And it can take up to several days for these payments to reach their recipient.
RLUSD is being built to satisfy a rapidly growing market. Additionally, there is growing support for stablecoins in the US, as it is believed they may be able to help drive demand for USD debt. Stablecoin issuers hold most of the backed dollars in US treasury notes. Collectively, stablecoin issuers are the 18th largest holder of US debt with Tether pocketing nearly $5B in revenue per quarter by holding large amounts of US debt.
As US national debt rises exponentially and other countries like China continually dump US debt, there is a growing concern around where additional demand for USD debt will come from in order to avoid debt collapse.
“The U.S. is headed toward a predictable yet avoidable debt crisis,” and dollar-backed stablecoins are “one answer” to keep the dollar attractive, argued Paul Ryan in a June 13 Wall Street Journal opinion piece.Ryan served as the 54th speaker of the U.S. House of Representatives from 2015 to 2019. The speaker of the House is considered one of the most powerful positions in U.S. politics, with the power to shape the legislative agenda.
“There would be an immediate, durable increase in demand for U.S. debt, which would reduce the risk of a failed debt auction and an attendant crisis,” said Ryan, who now serves as a policy council member at cryptocurrency-focused venture capital firm Paradigm.
Tether is on track to do ~$10B in revenue this year on roughly $117B of outstanding USDT issued.
For reference, Nvidia ($NVDA) currently trades at a $3.15 trillion market cap with ~$60B in annual revenue (2024).
The point here is that a successful stablecoin product is capable of generating large amounts of revenue that in turn can justify very large valuations.
(4) Improvements in XRP Ledger tooling enabling retail degen culture (DeFi, Memecoins, and NFTs)
Many do not know that XRP Ledger is a decentralized layer 1 smart contract network similar to Solana or Ethereum. Like Solana and Ethereum, XRP Ledger is capable of DeFi, NFTs, and memecoins, but has yet to see its ‘degen’ ecosystem thrive. We believe that should XRP’s price break out and start to outperform, there will a reflexive feedback loop that draws in builders and degens who incentivized by the growing liquidity on XRP Ledger. Additionally, many builders in the space have been deterred form building on XRP Ledger due to the regulatory uncertainty caused by the SEC lawsuit.
XRP currently trades at $33.5B (1/2 valuation of Solana and roughly 1/10th the valuation of Ethereum) despite having virtually no retail presence in DeFi, NFTs, or memecoins at this point in time. We believe the addition of these retail ecosystems on XRP Ledger is likely to manifest in 2025 and add additional value to XRP.
Charts
XRP/USD is in a multi-year winding pattern with a lot of compression coming in the last 4 years during the SEC lawsuit. Technical targets for a breakout pattern of this type range from $2 to $17, as crazy as the latter sounds.
Benchmarked against other cryptocurrencies, XRP is showing early signs of a reversal:
XRP/SOL may be attempting to reclaim its prior range lows. Beware of the scenario where this turns into a bear flag.
XRP is showing strength against ETH with a recent range reclaim. XRP appears to be heading to its range highs against ETH, which is 80% higher from here.
XRP/BTC is giving a strong reaction off of multi-year range lows and has recently broken an aggressive year-long downtrend.
It should be noted that XRP is a longer-term bet that may take time to play out, and thus a modest DCA strategy is likely appropriate for those who agree with the underlying thesis outlined here. It is also heavily dependent on a Trump presidential victory ushering a new crypto-friendly regime int he US. Crypto assets are highly volatile and there are many risks that can cause large drawdowns in price from time to time. As usually nothing in this paper should be construed as financial advice.