XRP was designed for $10,000.

The evidence is in its design.

When XRP was created, it was designed to be a replacement for both institutional and retail financial systems in every market around the world. How do we know this? An examination of how XRP is constructed makes this evident.

A somewhat famous quote from Ripple Labs co-founder Arthur Britto provides a tantalizing clue. In 2017, he wrote, “XRP must be scalable to accommodate 7.5 billion people.” We’ll come back to this quote, but it does provide insight into the scale of Ripple’s ambitions to be used by the global population. First, let’s examine some of the main features of XRP that support my claim that it was designed to carry $10,000 of value.

Liquidity and Availability:

XRP’s primary use case is to enable cross-border payments that are faster, cheaper, and more reliable than existing systems, such as SWIFT. On Ripple’s own Insights blog, Shanna Leonard explained how “XRP is the only digital asset specifically designed for financial institutions and payment providers … (by providing them with) a reliable, on-demand source of liquidity for cross-border payments.”

According to Investopedia, “Liquidity describes the degree to which an asset or security can be quickly bought or sold in the market without affecting the asset’s price.” What we see in today’s market is price volatility as a relatively small number of investors buy and sell XRP on the exchanges. Liquidity for XRP or any crypto comes as the price rises. Higher prices equal higher liquidity.

The fact that Ripple Labs locked up some 55% of total XRP in timed-release escrow accounts, and has been disciplined in relocking the unsold portions of each release will help to eventually drive the price up. Although institutional partners are likely buying XRP over the counter from these releases, this is not reflected in the published exchange prices. At the time of writing, XRP is available on exchanges for about $0.31, which has been relatively consistent throughout the past year, as prices across the entire crypto market have been depressed.

In the previous six months, XRP’s price has ranged from $0.25-$0.60, which represents a 120% range either side of the median. Even though this is a massive movement, it is not problematic for institutional use, because of XRP’s fast 1–5 second settlement times.

What is problematic, however, is that this price movement was driven by relatively small retail investments. To move value on the scale of SWIFT’s $5 trillion of daily transactions, requires much more liquidity than is available in today’s XRP pool. If some 45 billion XRP are available, this would require a price of approximately $111. We know that some of the XRP supply has been burned or lost (via lost private keys), and a much larger percentage is probably locked up as long-term investors hold XRP. Thus, an even smaller supply of XRP requires an even higher price to provide the minimum liquidity to accommodate SWIFT.

This problem compounds when XRP’s other use cases are factored in. International remittances (via MoneyGram, SendFriend, and others), retail payments, credit cards, and institutional and retirement investments (such as Grayscale and Morgan Creek Capital) will drive demand for liquidity. Fortunately, this added demand will also drive the price, which will provide the liquidity. In fact, this creates a virtuous circle in which demand increases prices, which increases liquidity and demand.

So, how high can this go? If the entire $1.14 quadrillion value of all asset classes was tokenized via XRP, that would require at least $11,400 per XRP. This isn’t likely to happen, but it demonstrates the scale of liquidity that XRP is designed to handle.

But what about at the other end: Divisibility

In his “A Brief(ish) History Of XRP,” James Hunt noted that “there is a max supply of 100 billion XRP, being divisible by 6 decimal places, meaning that the smallest unit (one drop) is 1 millionth of 1 XRP.”

Why would XRP’s designers make the token so divisible? At a value of $0.31 this is absurd. After all, who could possibly require the use of one millionth of 31 cents? But at a much higher token value, say $10,000 per XRP, that divisibility makes sense, for two reasons: Low transaction cost and affordability for small retail use.

Low transaction costs:

The XRP Ledger Dev Portal notes that the “minimum transaction cost required by the network for a standard transaction is 0.00001 XRP (10 drops). It sometimes increases due to higher than usual load.” Even at a $10,000 XRP value, the transaction cost still would only be approximately $0.10 US.

Affordability:

One cent (US) is arguably the smallest denomination that would be necessary to use XRP as a means of transacting everyday retail exchanges, even in developing markets, where much of the population is unbanked. This could provide affordable access to banking and digital financial transactions for even the unbanked.

In its 2017 Global Findex Database, the World Bank found that “about 1.7 billion adults remain unbanked — without an account at a financial institution or through a mobile money provider.” Approximately half of these unbanked people live in just seven countries: Bangladesh, China, India, Indonesia, Mexico, Nigeria, and Pakistan. The report also noted that, because “two-thirds of this unbanked population having access to a mobile phone, the door is opening to mobile banking services — as long as mobile access can be combined with well-developed payments system.” XRP, used in the many financial systems that Ripple Labs is working with partners around the world to provide, will enable even the unbanked to have access to digital financial tools that are fast, stable, and affordable.

Now back to that Arthur Britto statement that “the XRP ledger needs to be able to scale to serve 7.5+ billion people and even more devices … a new account mechanism that should allow the XRP ledger to efficiently service humanity scale usage is in development. This would allow everyone to have an account on the XRP ledger for low cost while providing the necessary performance for humanity level service. I expect, most users of XRP will use hosted accounts for their day to day needs: holding small amounts of XRP, placing orders, and making payments.”

Summary:

The design decisions that went into creating XRP’s structure lead me to believe that it was designed to operate at $10,000 and to serve a truly global market.

The obvious question that any XRP holder will ask now is “Will it get that high?” I sure hope so, but there is no guarantee. If it happens, I don’t think it will be in the next five years.

But, how high can it go? In a recent article, I explained how this new asset class can (and I believe will) absorb the $1.1 quadrillion value of all other markets.

What do you think?