Ripple February Update: ODL Data, Buyback Theory, LBC Price Surge, SEC Final Arguments

My first article makes the case there’s not enough real-world adoption to justify a long-term position in Ripple’s XRP token (XRP-USD). But buying now while the price is depressed from the SEC lawsuit and selling on news of a settlement or legal victory does make sense.

In this update, we’ll look at the price action for XRP, examine any further evidence of ODL and CBDC adoption, and check the latest on the SEC case.

Market update and price action

XRP has not benefited from the recent run-up in price in Bitcoin (BTC-USD), Ethereum (ETH-USD), and most other coins. Check the 3-month BTC chart:

Most other coins are similar but XRP is mired in a trading range of $.32 to $.42. Why hasn’t it enjoyed the same breakout as most crypto? The most likely cause is the overhang from the ongoing SEC lawsuit, now over two years old.

Could a Ripple court victory repeat LBRY Credit’s price action for XRP?

In March of 2021 the SEC alleged LBRY sold their LBC token (LBC-USD) as an unregistered security. Late last year, the court ruled in favor of the SEC and classified the initial sale of LBC tokens as investment contracts. However, during this latest hearing the judge clarified that the previous ruling only applied to the direct sale, not the secondary sales. In a January 30th ruling,

The judge in a case brought by the U.S. Securities and Exchange Commission (SEC) against decentralized publishing platform LBRY Inc. ruled that the secondary sale of the LBRY Credits cryptocurrency, or LBC, does not qualify as the sale of a security.

This exonerated LBC in the eyes of investors and the token price immediately spiked 80% and later to 280%! Check out the chart:

The hope of XRP holders is that this precedent will also hold for the SEC lawsuit with Ripple: designating only the initial sale of XRP as unregistered securities and clearing the way for unencumbered secondary sales. There was much online speculation that the XRP price would perform exactly like LBC, and I agree. But check the price action after the exuberance waned.

In the opinion of this humble writer, the XRP price action will exactly match the LBC chart trend — a huge spike on news and then an inexorable decline as retail buyers realize there’s no “there there” and sell off. I wrote about this in my first Ripple article:

History shows a distinct and repeated pattern of price increases with any glimmer of good news in the SEC case.

For example, in April 2021, Ripple won a legal battle for access to SEC discussions on defining crypto assets as securities. That news coincided with an explosive 75% rally in 30 hours. Then, XRP jumped 13% on May 30, 2021, when Ripple stopped the SEC from accessing certain legal records. In October 2021, Judge Sarah Netburn issued a ruling in favor of Ripple Labs, which triggered a 17% rally in XRP’s price.

How is ODL progressing?

In Ripple’s latest quarterly report we read:

On Demand Liquidity (ODL), Ripple’s crypto-enabled cross-border payments solution, launched in France, Sweden and Africa, now available in nearly 40 payouts markets.

Ripple has processed nearly $30B worth of volume and 20M transactions since RippleNet was first launched. In 2022, approximately 60% of those payments were sent through ODL.

It’s good news that ODL is now available in close to 40 markets. The Q4 Report did not update numbers for RippleNet’s run rate, last projected at $15 billion for the year 2022, but did disclose that about 60% of payments are ODL. So we can estimate ODL transactions at $9B for 2022.

At this volume, RippleNet’s volume is still not a threat to the SWIFT network’s huge trillion dollar a day market share and has little effect on the token price.

Is the Bank of England using Ripple to develop the Digital Pound?

Social media influencers have recently claimed that the Bank of England is using Ripple for their Digital Pound project according to an HM Treasury paper. Some media outlets also stated this as a fact. But what does the document actually say?

It referenced the completed 2017 proof of concept but it did not indicate any current work with Ripple. Conversely the Technology document specifically names Ethereum and Avalanche (AVAX-USD) (page 74) as networks for consideration.

Will the XRP Buyback Theory make XRP holders rich?

This idea – proposed by Jimmy Vallee of Valhil Capital in 2021 – says the global financial system must have a scalable digital asset to address the massive national debt currently plaguing most countries. He believes XRP is best positioned to solve this predicament by becoming the world’s reserve currency.

But to enact this plan, governments would need to obtain large amounts of XRP ostensibly purchased from retail holders like you and me. XRP’s 100 billion tokens would then replace the entire monetary supply for the world. Vallee calculates the buyback rate for XRP between $37,500 and $50,000 per token!

This theory is entirely speculative with little real supporting evidence but it’s a great example of what passes for research by online influencers.

Banks and governments will surely opt for more easily created stablecoin assets which are custom designed at lower cost.

But hey, imagine only needing a paltry 27 XRP (about $11) to eventually make you a millionaire and just 27,000 XRP to get into the billionaire club! It could happen, right?

No, this is pure hopium.

National Australia Bank to Launch Stablecoin on Ethereum, Algorand

The National Australia Bank announced that it will launch a new stablecoin backed by the Australian dollar. The stablecoin will allow real-time blockchain settlements using Australian dollars on the Ethereum and Algorand (ALGO-USD) networks according to the NAB’s Howard Silby. It is also being considered for cross-border payments.

This NAB action follows a 2022 effort by the Australia and New Zealand Banking Group Limited, ANZ, to create a stablecoin pegged to the Aussie dollar. It used an Ethereum Virtual Machine (EVM)-compatible smart contract deployed through the Fireblocks platform.

Currently, there are just two CBDC projects that have announced partnerships with Ripple. Palau and Bhutan. From the original 2021 Palau press release:

The partnership will initially focus on developing strategies for cross-border payments and a USD-backed digital currency for Palau. This could see the implementation of the world’s first government-backed national stablecoin in the first half of 2022 for which Ripple would provide Palau with technical, business, design and policy support.

This declared target to launch a stablecoin in Palau was missed, and I’ve seen no further updates. The Bhutan project was the first announcement of plans to explore use of Ripple’s CBDC Private Ledger but again there’s been no additional info since the initial press release.

When will the SEC lawsuit be resolved?

On December 2nd of last year, both Ripple and the SEC filed their redacted replies in support of their respective motions for summary judgment. Judge Annalisa Torres has not yet set a date for the next hearing. Ripple CEO Brad Garlinghouse stated,

We’re optimistic that this will certainly be resolved in 2023, and maybe [in] the first half. So we’ll see how it plays out from here. But I feel very good about where we are relative to the law and the facts.

We have always said that we would love to settle, but it requires one very important thing, and that is that, on a go-forward basis, it’s clear that XRP is not a security.

Settlement to avoid trial is still possible, but Ripple is intent on a result which clarifies XRP as a non-security. The amount of fines may also be under negotiation. The SEC has handed out heavy crypto related penalties in the past several years. Ripple’s massive treasuries could embolden the SEC to levy the largest fines yet — perhaps approaching the billion dollar range. But if the fines are too great, Ripple may be put out of business.

The other thing to consider is what would happen if Ripple flat out loses against the SEC? In an interview with Axios at Collision 2022, Garlinghouse makes the argument thats the XRP price already reflects this scenario. “If Ripple loses the case, does anything change? It’s basically just status quo.”

Vauld update

In my May update, I introduced an exchange called Vauld that not only listed XRP but also paid up to 6.7% interest. I had my XRP on deposit there when Vauld closed withdrawals due to market concerns.

It’s been 8 months and creditors disgruntled by the Vauld management’s lack of direction have banned together to form the Vauld Creditors Alliance:

The Vauld Creditors Alliance (VCA) launched in February 2023 as a group of Vauld creditors with the common goal to initiate and implement a creditor-driven solution to the restructuring of The Vauld Group of companies.

The VCA’s mission is to research, report, and act on matters pertaining to the restructuring of Vauld and its legal entity Defi Payments Ltd. The goal of the VCA is to ensure Vauld creditors at large and VCA members in particular receive accurate information, swift action, and fair treatment resulting in maximum return of creditor funds at the lowest cost.

Like many caught in similar situations with Celsius (CEL-USD), BlockFi, and Voyager (OTCPK:VYGVQ), I await the Vauld bankruptcy and legal proceedings with diminished expectations about retrieving my coins. However, since my conviction for the Ripple trade remains strong, I’ve recently repurchased my XRP bag.

Conclusion

The LBC coin security clarification, subsequent price spike and decline is more reason to sell on the news. There’s no new evidence that XRP has value as a long-term holding. In fact, the Bank of England and National Australia Bank projects show institutions are considering Ethereum and other networks instead of XRP.

Without settlement, the SEC overhang on XRP price could extend well into 2023 as we await further legal action to grind slowly forward.

Editor’s Note: This article covers one or more microcap stocks. Please be aware of the risks associated with these stocks.