XRP (XRP +4.05%) investors are no strangers to hype, buzz, and speculation. So they're probably not at all surprised by a new investment thesis from a crypto industry insider that positions XRP as the next Amazon (AMZN 0.58%).
This investment thesis is based on careful analysis of nearly $2.5 billion in acquisitions made by Ripple (the company behind the XRP token) over the past year. All of these acquisitions seem to point to one conclusion: Ripple is rapidly building out the infrastructure for a modern, blockchain-based financial system, in which XRP could play a major role.
Amazon, what?
Of course, we're not talking about Amazon.com, the e-commerce website that probably accounted for a big chunk of your holiday spending. Instead, we're talking about Amazon Web Services (AWS), the cloud and IT infrastructure subsidiary of Amazon. This is where Amazon makes a big chunk of its money, so it's perhaps no surprise that companies in other industries are looking to replicate this business model.
NASDAQ: AMZN
Key Data Points
According to Jake Claver, CEO of Digital Ascension Group, Ripple's acquisition spree last year was more important than most people realize. In fact, the flurry of dealmaking reminds him a lot of Amazon's decision to launch AWS in 2006.
Image source: Getty Images.
From this perspective, Ripple's multibillion-dollar dealmaking helps to put into place the pillars for new financial infrastructure. XRP and Ripple USD (RLUSD +0.01%), the new stablecoin from Ripple, will help to change the way transactions are settled around the world, and everything will flow through the XRP blockchain ledger.
There's obviously a lot to unpack here. But here's the ELI5 ("explain like I'm 5") version of this investment thesis: Money needs to flow around the world, and there can't be any clogs in the system. What's needed is a way to move money across borders, with as little friction as possible, at all hours of the day or night, at the lowest possible cost. That's what Ripple is trying to do with XRP and the RLUSD stablecoin.
Should you invest in Ripple or XRP?
My first instinct was to dismiss this investment thesis entirely. But I think that would be a mistake. The lines between the traditional financial system and the blockchain financial system are blurring, and new winners are bound to emerge. So it's important to understand what big fintech players are trying to fix, and why.
CRYPTO: XRP
Key Data Points
Unfortunately, even if Ripple does manage to execute on its plan, most of the value might end up flowing to Ripple, and not to XRP. That might help to explain why Ripple managed to line up $500 million in financing last year, earning a $40 billion valuation in the process. What Ripple is doing is immensely valuable, and the upside -- in terms of a future valuation -- could be tremendous. The true value of this fintech company might be close to $100 billion.
But what about the price impact on XRP? It's still just a bridge currency for transactions. You don't actually use XRP to pay for anything directly -- you just use it to swap between different fiat currencies. Moreover, XRP's role continues to be usurped by stablecoins, which likely represent a more efficient way to move money across borders.
That might help to explain why the price of XRP is still just $2. In fact, in more than a decade of trading, XRP has never once traded higher than $4. So, even if Ripple really does become the next Amazon, it doesn't mean that XRP is going to go along for the ride.
