Ripple Coin’s (XRP) price surge recently is nothing short of incredible.  Going from a little above $0.03 cents to over $0.40 cents in less than three weeks.  Congratulations to those who bought low but it’s time to look at taking some profits.  My bet is that this uptrend will start breaking down pretty soon if past pumps are any indication.

To set the record straight.  I do not have an issue with Ripple being a centralized system and believe the company will do very well in the future.  They are tackling a very real problem and got something very special going on.  With that said, I don’t believe you can value XRP, the token currency, at this point in time.  Furthermore, I doubt that the majority of people invested in XRP fundamentally understand the intricacy of how Ripple (the company) and XRP (the token) work together aside from the vague description provided on the company’s website.

Since I argue XRP can not be valued, I have no near term price projections.  Rather I will leave you with something to ponder and let you come to your own conclusion.

XRP Burn Rate

Why is XRP valuable?  It is useful because it is needed to conduct transactions on the ripple network right?  It’s basically a transaction fee token within the Ripple system.  Or think of it like the oil or fuel that is required to run the system which facilitates transactions between banks.

If that is the case, then it would be important to consider the cost of transactions as it would have a direct impact on the fundamental valuation of XRP.   The greater the transaction cost, the more XRP you will need to facilitate your transactions; hence a greater demand and higher price.  Similar to oil or any other commodity, the price will rise if we need more of it and fall if we need less.

Right now the cost of a standard transaction is 10 drops (0.00001 XRP), meaning that you can do 100,000 transactions with one ripple.  Let that sink in for a bit.  The cost of transaction is essentially free.  If you only needed 1 liter to run your car for a year, the price of gas would plummet.  Now yes, this rate could change in the future.  The cost is designed to increase as transactions increase in order to prevent spamming in the network; but ultimately the XRP burn rate is dictated by the company so we really don’t know what the rate will be in the future.

Circulating Supply

As of date, there are approximately 38 billion XRP in circulation and an additional 62 billion XRP held by the Company.  In all likelihood the company would not dump their XRP into circulation as it would do them no good to see the price plummet.  With that said, I also think it’s reasonable to assume that the company will release  their XRP holdings gradually at some time.

So the idea that XRP is great store of value for it’s deflationary characteristics because XRP is burn out of existence is likely going to be proven untrue.  It will inflate or deflate depending on how the company dictates the transaction costs and releases XRP into circulation.  They essentially control the circulating XRP supply like how central banks control the money supply.

If you want a deflationary coin, Bitcoin is probably going to be more deflationary.

Comparative Valuation

Finally, if we take XRP’s market cap valuation (circulation supply only); it is worth almost 15.5 billion dollars.  That is literally more than half of Bitcoin’s current valuation.  This also means that the company Ripple holds about 25 billion dollars ((62/38) x 15.5 billion) in XRP value alone.  Now I can not say with certainty what Ripple as a company is valued at because it is not a publicly traded company, but my guess is that Ripple Labs valuation in their last round of funding  is no where near even the current valuation of their XRP holding.

To sum up, I believe that Ripple coin (XRP) is overbought, overpriced and overvalued @ $0.40 cents.  Valuing crypto currency is a difficult enough but valuing XRP at this time is near impossible.  The price surge in Ripple is driven predominately by Ripple Lab’s narrative and speculative hype.

I personally would not recommend investing anything significant into XRP and would consider taking profits if I held any at this time.  As fast as speculative money come, it can disappear just as fast.

Update – I’d recommend closing shorts positions on Ripple at the current price of $0.1757 (0.00007533 BTC).  Though despite significant correction in price, I still would not advise buying XRP.  It’s fundamental value remains obscure to me and buying at the current price is purely a gamble in my opinion. (July 11th, 2017)

Disclosure: I am not financial advisor and these are strictly my opinions only.  I also do not currently hold any XRP.