Why I Think Ripple (XRP) is Overvalued at $0.02 each

[Pzi4nk]

Prices for XRP vary widely but on most markets it's around 6500-5500 XRP: BTC or between $0.0187-0.0223: XRP.

With 100 billion XRP available, Ripple (the company) reserved 20 billion for themselves to compensate investors.

We should be able to deduce the expected future value of XRP by asking what amount of money would a tech startup consider a success. General answers for a successful tech business are in the $100-300 million range.

Dividing $100-300 million by 20 billion XRP gives us an anticipated value of $0.005-0.015: XRP.

In my opinion, XRP is currently overvalued by 148%-374%.

[colour]

Why divide by 20 billion? You mentioned yourself that there are 100 billion in total?

And how is the value of a limited currency dependent on the worth of the company that hands them out?

[Praxis]

I actually agree. It is definitely overvalued. Sold like 30K for half BTC few weeks ago I still think that price was more reasonable.

[Pzi4nk]

Why divide by 20 billion? You mentioned yourself that there are 100 billion in total?

And how is the value of a limited currency dependent on the worth of the company that hands them out?

My analysis is based on the idea that the creators of Ripple had some idea of XRP's expected value. If that is true, how much did they think it should be worth?

Hence, I divide by 20 billion because that's how much they reserved to themselves as profit. And then asked, how much did they think a successful company should be worth? and divided that amount by 20 billion.

It includes a great deal of speculation on my part but the idea was to get a "ballpark" estimate of a reasonable valuation of XRP based on the founders' expectations.

[mr_random]

I'm anti-Ripple but I have to say the way you just plucked that $300 million dollar figure out of your ass makes your analysis worthless.

[eikzbtc]

They will value 0 , if this get implemented  : https://bitcointalk.org/index.php?topic=212490.140

[Pzi4nk]

I'm anti-Ripple but I have to say the way you just plucked that $300 million dollar figure out of your ass makes your analysis worthless.

Point taken, though I think you'll find most financial analysis involves a fair amount of pulling numbers out of odd places.

The $300 million is not random, it's also not accurate. It's an informed guess in order to arrive at a ballpark figure.

[arsenische]

I like Ripple and ideas behind it and I'd like more businesses (and especially exchanges) to adopt it.

But I think XRP is overvalued currently.

There will be no more than 21 million bitcoins and 100 billion XRPs. If we assume that XRP takes the same share of market as Bitcoin, then 1 bitcoin should be ~ 4761 XRP. In the long run XRP can be even more expensive since XRPs are being destructed with each transaction (though bitcoins can be lost too).

However Bitcoin is simple, predictible and reliable. It is open source and community driven, and it has been functioning in wild for several years!

There is some risk that few earliest Bitcoin adopters start spending their bitcoins thus debasing the currency, but they don't hold nearly as large share of potential currency supply as OpenCoin does. Moreover not all bitcoins are mined yet, so even if Ripple was as successful as Bitcoin is today, 1 btc should be ~ 9K XRPs.

But Ripple is far from being as successful yet, it is not even fully launched. It is run by OpenCoin in controlled conditions. Not so many businesses accept it. IMHO XRP is overpriced currently due to speculative interest & artificially created deficit (that can be fixed anytime). I might be wrong, but I think it is significantly overpriced, the risks in case of using them as store of value are way to high (even OpenCoin doesn't recommend it).

XRP's value depends solely on OpenCoin's political decisions. They hold significant share of the currency and can increase/decrease the amount of XRPs in circulation, reserve requirements and maybe fees. They are the regulator and they may decide to start massive giveaway anytime. That's why in short term XRP is similar to fiat money and in my opinion it should be several times cheaper than it is now.

[Impaler]

The error is assuming that market cares about the unreleased XRP, the market price is based entirely on the released and circulating quantity XRP which is much much less then 100 billion, I've heard some estimates of ~2 billion.  That would be a market cap of around 36 million which is less then LTC market cap.

[arsenische]

The error is assuming that market cares about the unreleased XRP, the market price is based entirely on the released and circulating quantity XRP which is much much less then 100 billion, I've heard some estimates of ~2 billion.

That's what I call the artificially created deficit. Market should care about XRPs that are not yet in circulation since eventually they will be there. And nobody knows when and how it happens. That are the risks, that should be accounted for.

[Turdit]

Just for info, the amount of XRP floating is 1 billion. I asked that question at the Ripple boot during SJ BTC Conf 2013. I have obviously no way to proove it but the person I spoke too have no reason to lie....

[cryptoanarchist]

Ripple = Garbage shit

"I need to find a bathroom soon because I really need to take a ripple."

[Pzi4nk]

The error is assuming that market cares about the unreleased XRP, the market price is based entirely on the released and circulating quantity XRP which is much much less then 100 billion, I've heard some estimates of ~2 billion.

That's what I call the artificially created deficit. Market should care about XRPs that are not yet in circulation since eventually they will be there. And nobody knows when and how it happens. That are the risks, that should be accounted for.

Exactly.

The market has to factor in how many XRP will eventually be available. If investors only look at what is circulating now the price would be higher but would fall when more XRP were circulated.

Knowing they're available for circulation at any time, prudent investors will factor them into the price.

[erk]

https://bitcointalk.org/index.php?topic=212862.0

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