XRP: The Biggest Scam in Crypto History
A fundamental analysis of XRP
Listeners of the CRYPTO 101 Podcast have long heard my relentless trashing of the XRP token along with a few main bullet points why. For some, this is simply not convincing enough. I applaud these people for their skepticism. For these people, and all others who will join the crypto revolution in 2024 and beyond, here is a total and complete fundamental analysis of Ripple, XRP, and if it is a good investment or not.
What is Ripple? What is XRP?
The name Ripple comes from Ryan Fugger’s 2004 project Ripplepay, that featured the ability for community members to give each other credits through a website. Independent of this, in 2011, Arthur Britto, Jed McCaleb, and David Schwartz began building XRP and eventually brought in Chris Larsen to be their CEO. Once the XRP ledger was completed, they reached out to Ryan and asked if he’d like to replace his current system with their new decentralized technology. He agreed, and they founded a new company in 2012, going by the name OpenCoin.
This group of developers saw Bitcoin in its early days and decided to address some problems they saw with it; namely that Bitcoin could not scale up to be the currency of the world due to its limited transaction throughput and long settlement times. Now named Ripple Labs, they set out to create products that solved a variety of financial use cases, most notably cross-border settlements, social credit, and as of early 2021, their major goal is to get a piece of the incoming Central Bank Digital Currency world.
Of the various financial products created, the original one is called XRPL — a blockchain based on private trusted nodes rather than anonymous miners. Nowadays, there are several products Ripple has created which do not use the XRPL network or XRP token. Updates to XRPL are sent downstream from other products. XRPL is run by decentralized node operators and powered by a utility token — XRP. The token is used to pay for transactions across the network, a tiny fraction of a token not even a whole 1 XRP, which is then burned. Node operators do not earning XRP from the network, or from Ripple.
The Good, The Bad, & The Ugly
The Good
Ripple has partnerships with many (a few hundred) large money transfer companies to help ease the fees of cross-border payments, remittences, and provides a variety of solutions for people who work in different countries than their families live. Sending Bitcoin works, but can be a lot slower during high traffic periods of time (several days or even weeks), fees that are just too expensive for second and third world people, and high price volatility that could be a lot more or a lot less by the time the recipient is ready to convert it to cash.
The Bad
Ripple deviates from the ethos of early crypto, treating open-source software as an afterthought, a secondary waste product, instead of a core value. At the time of XRP’s mint, most tokens on other networks were created at the time of block settlement, rewarding node operators (and/or miners) for processing transactions. Even though XRPL was to be run by community operators, Ripple “pre-mined” the entire XRP supply to their own wallets, giving them full control of how XRP would be distributed in the future. The original distribution looked like this:
20% to founding team members
80% to Ripple Labs
The two original founders have moved on to focus on leading newer companies, with Jed McCaleb dumping all of his tokens. It is unknown what Arthur Britto’s holdings are.
Ripple requires a 10 XRP “deposit” to create a wallet. As opposed to a fee of literally 0 for 99.9999% of all other blockchains. Can you get your deposit back? Yes… for another fee. The future of banking suuure looks a lot like the present.
But the worst part, the part that makes them a giant scam is… the business model of dumping on their community.
Ripple’s entire business model is a giant pump and dump scheme. The mechanics of how their business model works, and their partnerships are allegedly fake, is highlighted in this 2019 Forbes article. The proof of token dumping can be found in Ripple’s own quarterly reports. Hundreds of millions in USD was brought in year after year, even after locking 55B tokens in “escrow” with 1B XRP unlocking every month.
Why is a token created for a decentralized network being controlled by a privately held corporation, who sells it “programmatically” on the open market, and keeps all the revenue? Only a total scam would or could do something like that.
Fast-forward to 2023: Ripple’s latest quarterly report still shows no sign of actual revenue, sales, meaningful real partners actually using their technology. If this pump and dump scheme was not true, how else have they made money to fund their operations of 500+ employees based out of San Francisco for over 10 years? Well, there’s a lot of VC capital as well. Ripple has already completed their Series C round. If you think big VC money equals legitimacy, you haven’t ever worked in venture capital.
FTX raised $400M at a $32B valuation. Books were cooked more than a well-done steak. Not a single firm dug deep enough to even notice anything suggesting something was wrong, not even the co-mingled bank accounts with the CEO’s other company, Alameda Research. Brand name alone wrote the check to FTX, and it is the same with Ripple.
The Ugly
The worst part about XRP is its community. The XRP Army is a cult of lies, deceit, and complete lack of understanding of how markets works, how crypto works, and apparently how even basic probabilistic assessment works. They bask in a fantasy, based on “what if”, without any credence to “what is”.
A great example of this can be found in this 2019 blog post, detailing why this author believes XRP will be worth $10,000 each one day… a mathematical impossibility when you factor in that there are 100,000,000,000 XRP in the total supply (minus a teeny tiny amount that burns). That is a quadrillion-dollar fully-diluted market cap. There isn’t that much money in the entire world in circulation — not even close.
Absurd price promises are found everywhere, making people just joining crypto in 2023 think there is still a lot of meat left on the bone to make life-changing wealth. There isn’t. Previous bull markets were driven by wash-trading, with as much as 99% fake exchange volume in some places. With crypto markets now widely regulated worldwide, wash-trading and fake volume being illegal, we’ve seen a drastic change in volume stats across the board even during the 2021 bull run.
This is the 2017 bull run. https://www.coingecko.com/en/coins/xrp/historical_data?start=2017-10-01&end=2018-01-01#panel
XRP exploded from a low volume of only $45M to a high of $6B within one month’s time. This is not natural; clear price manipulation that is now illegal.
Here is the last bull run, topping out in the spring of 2021. https://www.coingecko.com/en/coins/xrp/historical_data?start=2021-04-01&end=2021-05-31#panel
A lot more volume is needed to get price moving, from a low of $4B to a high of $29B in daily volume, which only got XRP to barely over $1 (on April 7th, 2021), not even close to its previous all-time high of $3.40. The high volume spikes and momentum continued, but ultimately ran out of steam without ever making a credible approach to even $2.
Without Ripple’s massive war chest of USD (now kneecapped by escrow and community sentiment) and ability to run fake volume and wash-trading through off-shore exchanges, and no sensible reason whatsoever for allocations from pension funds, sovereign wealth funds, or any mention from the big ETF players that have files for BTC and ETH ETFs (Blackrock, Fidelity, Franklin Templeton, among others), there is absolutely no chance XRP approaches previous all-time highs, let alone any of the absurd 3, 4, and 5-digit price predictions.
Common Misunderstandings Debunked
- XRP is tied to the growth of Ripple.
This is false. XRP does not share in the revenue of Ripple Labs. Despite the SEC’s law suit claiming XRP is a security, it does not feature perks of preferred stocks, such as voting rights, dividends, profit shares, or anything of that nature. XRP’s price is completely subjected to supply and demand, and overall market conditions, just like every other commodity asset. - XRP is going to make you rich.
This is false. XRP is not designed for maximum profits, but rather maximum liquidity. Highly liquid assets experience less volatility than much less liquid assets. Liquidity in crypto is notoriously small, but as the space matures and grows, more liquidity will mean less volatility (in both directions). And it also means diminishing returns on very large market cap coins. For XRP to double in price, it must add value twice its market cap (circulating tokens * price). At over $50B, that is a lot of value that needs to be pushed into an order book very quickly to see a significant price jump. With multiple millions in price depth at +/- 2% across many exchanges, XRP’s design is to be able to use it for payment across the world and cash it out at or near the same value you were expecting to receive. Due to its poor fundamental perks compared to others assets that give dividends, staking rewards, profit sharing, and other passive mechanisms, institutional and ultra high net worth individuals are not going to be stockpiling this token, despite what your favorite scammer/influencer might be shouting at the top of their lungs. - Ripple beat the SEC’s lawsuit so it must be fine now.
This is false. Ripple has been sued several times by a variety of partners and legal bodies in its’ short lifespan. They’ve paid fines or settled these other suits. While they have plenty of tokens left to dump in order to generate funds to pay back early investors, there is still no clear operation model to keep this company afloat long-term. That’s a huge red flag for companies and countries considering adding blockchain technology to their offerings, and XRPL doesn’t offer much more confidence either. No projects, CBDCs, or anything else that wants to exist long-term will build on a network that relies on uncompensated nodes, that also require no stake to run. It lacks the incentives to tell the truth that all other Proof-of-Stake networks have in place. - Institutional money is in XRP!
Guess again.
https://ninjapromo.io/top-30-crypto-vc-investment-funds
Now this is the kind of misinformation you see everywhere. Despite Ripple/XRP not being mentioned anywhere in this list of holdings, there are a few of these firms that *did* participate in Ripple’s equity rounds. There are also a few of these firms that have completely blown up and went bankrupt. Even though the article was last updated Sept 11, 2023, it still lists FTX, Alameda, 3 Arrows Capital, and Multicoin Capital (not dead but badly damaged) in the Top 30. None of these funds are falling for the scam, but rather betting on the scammers to make them a lot of money. If scams went broke first, no one would do them. No, that would be you, the XRP holder, who will go broke long before they do. Except for the funds above; you already beat them. Very nice!
