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Chris_Reeves

Building a model to determine potential XRP price impact of xRapid

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There's two of these floating around already, one is on this forum created by a member (haven't seen the topic updated for a while though), and one is on reddit.com/ripple.  Couldn't tell you the URL's of either though, sorry. But if you can find them, it's well worth a look to see if it helps you.

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3 hours ago, Chris_Reeves said:

Hey guys,

I'd consider myself a pretty advanced user of excel and other analytical tools and I need your help for this project. I'd like to attempt to model the impact of xRapid on market prices as transaction volume increases across exchanges. As with most calculations, it's most often a problem of not factoring in all variables when you're trying to draw the correct conclusion. This is where you all come in. I need help determining everything that needs to be factored into this calculation. Currently, I plan to build a model of general XRP volume averaged over 24 hours then input the new data for when xRapid comes live and adds to the transaction pool. We have some smart minds in here that can work with me on how to model this out correctly, smarter than me. But I'll crunch out the numbers and get it back to you all for review afterwards. 

Any input on items to factor in are greatly appreciated.

I'm afraid.. (in a good way) that modeling something so gargantuan may not be possible?

There's no telling where supply will be after XRP goes live; banks integrated and using XRP as remittance will be buying all that they can to replenish coffers constantly being sent off to other institutions. This isn't including what Codius or Coil could potentially offer, as their platform is based off XRP usage and payments.

I feel like the burn rate would increase phenomenally, with the rare exception somebody fat-fingering an order wrong and burning an incredible amount of XRP in a short amount of time.

To put it into perspective, let's say Bank A starts out with 500,000,000 XRP from Ripple signing them onto the deal; and at .30c per XRP that's roughly 150,000,000$ that they can remit successfully, before having to purchase more XRP.(Unless the banks cut into this somehow to take profits for theirselves.) The demand of the XRP purchase draws the price up, as they purchase however many more XRP they'll need to facilitate transactions for that day (or order, if somebody moves more than 150,000,000$!!)

At our all time high, we saw about 8-9billion dollars a day in Volume. (3.60 per XRP) Most of that was probably USDT / BTC bullrun hedges.

But, if you're looking for places to start looking, let's see how much volume SBI (We know that they are onboard with XRP) plans to integrate into XRP.

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2 hours ago, MostlySilverFox said:

This is the one from Reddit.

@Hodor Did a volume analysis 2018 - 2021 that might also be useful.  Volume Analysis

Just a friendly note > The link you provided from Reddit was updated by its author on Nov 10, 2017 to this article which included an XRP price analysis reversal down to $0.05 valuation with supporting reasons only based on the author's opinion at the time.

Keeping in mind the valuation of XRP has not dropped to his prediction since, it does seems apparent XRP's price is still influenced heavily by BTC and its gang of centralizing maximalists. Moreover, the author neglected to include anything about Ripple's suite of products (most importantly xRapid) and the long-anticipated performance of SBI Japan going live.

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If (when) XRP is determined to be a currency, it should be reasonable to measure it against similar valuation concepts applied to the currencies we have now.

As the current global reserve, here's a USD example from https://www.banknoteworld.com/blog/the-value-of-currency-how-its-really-determined/

Quote

 

The value of currency is most commonly determined by the demand for it. This is the same way goods and services are assigned value and gives the measurement of what makes money valuable such breadth. Overall, there are actually three main ways to measure the value of currency in the United States. These include:

How much the currency will buy in foreign currencies. This is measured by the exchange rate.

The value of Treasury Notes. These can be converted into dollars through the secondary market for Treasuries. Through these measurements, when the demand for Treasury is high, the value of the U.S. dollar will rise.  

Foreign Exchange Reserves – the amount of currency held by foreign governments. When a foreign government holds more currency, the lower the supply of that currency. In the U.S., this makes dollars more valuable.

As mentioned, anything can be currency so long as enough people decide to use it as such. By the same token, the value of currency can change over time. In fact, in the United States, the value of the dollar has changed in the last 100 years. In the 1910s, money was worth much more. Then, a dollar could buy as much as $25.00 worth of goods or services in 2017. Many things can affect the value of currency: time, the rise and fall of any given economy, and other factors.

 

In regards to the rest of the world, there are many variables that determine the value of currency, and these variables change from country to country. Of course, there are still universal benchmarks that help determine the value of a currency. These include:

– Interest Rates: High interest rates help to build a strong currency in any economy. This is mainly because when foreign investors do business with a country, they get a higher return on their investment.

– Economic Policies: Certain economic policies can help make a currency strong, but this is relative depending on the currency and the country it belongs to.

– Stability: The more stable an economy is, the stronger it is as well. When an economy is stable, it invites foreign investors to actually invest, which can increase the strength, or value, of a currency.

When it comes to the value of currency, many factors are involved worldwide. In short, it all really comes down to strength, stability, and how the exchange rates measure up.

 

 

Another forum member @Kalarie provided a nifty formula in a previous post.

Quote

 

Do you really want the mechanics of how that works?  Here it is, straight from monetary economics.

MV=PQ where

M=Money Supply

V= Velocity of money

P=Price of goods in economy

Q= quantity of goods in economy

So why does more transactions equate to a higher price per zerp?

1) The money supply is ultimately shrinking even accounting for the escrow disbursements, albeit slowly.  Conversely the USD money supply is growing

2) Velocity of money in the long run is always constant.  XRP won't change that.  People just buy stuff when they buy stuff.

3) XRP won't change the price of the products being sold in the transactional economy, the only price change predicted is the cost of moving money around the world.  That is minimal in the grand scheme of things.

4) This is the most important.  More transactions means XRP is covering more quantity of goods, also known as supplying a larger economy.

Mathematically then, take the derivative of MV=PQ and you get:

%change in M + %change in V = %change in P + %change in Q

In our scenario above V is constant, P is constant, Q is growing by the volume of transactions, therefore M must also grow by the same volume, but since the number of Zerps in M is constant, then the value of each Zerp must grow to equalize the growth in Q.


 

 

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4 minutes ago, Jugular said:

Just a friendly note > The link you provided from Reddit was updated by its author on Nov 10, 2017 to this article which included an XRP price analysis reversal down to $0.05 valuation with supporting reasons only based on the author's opinion at the time.

Keeping in mind the valuation of XRP has not dropped to his prediction since, it does seems apparent XRP's price is still influenced heavily by BTC and its gang of centralizing maximalists. Moreover, the author neglected to include anything about Ripple's suite of products (most importantly xRapid) and the long-anticipated performance of SBI Japan going live.

Thanks for adding this clarity! :drinks:

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5 hours ago, Chris_Reeves said:

Hey guys,

I'd consider myself a pretty advanced user of excel and other analytical tools and I need your help for this project. I'd like to attempt to model the impact of xRapid on market prices as transaction volume increases across exchanges. As with most calculations, it's most often a problem of not factoring in all variables when you're trying to draw the correct conclusion. This is where you all come in. I need help determining everything that needs to be factored into this calculation. Currently, I plan to build a model of general XRP volume averaged over 24 hours then input the new data for when xRapid comes live and adds to the transaction pool. We have some smart minds in here that can work with me on how to model this out correctly, smarter than me. But I'll crunch out the numbers and get it back to you all for review afterwards. 

Any input on items to factor in are greatly appreciated.

Hey Chris, one argument that I've never had anyone give any decent answer to is velocity. How might the speed of XRP affect supply? I think this is nearly impossible to analyze, but maybe you can get close? Maybe there are some historical metrics and if you can simply plug in the turnaround it helps. 

Or maybe FX markets already have speedy access to capital that is simply centralized (hence the speed) so it is a comparable metric? I'm not sure, but I think that's something worth plugging in and making a guess at. 

Another thing worth thinking about is domestic rails in a given country. I think that may greatly impact the possible offerings of an emerging fintech company. 

You may try to do some real market research in to Cuallet too and see what their customers are experiencing to try and extrapolate information.

I'll send more along if I can think of anything. 

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Not sure what effect this will have on your model. 

 

David Schwartz: 

Two main things, assuming XRP is successfully positioned as an intermediary asset:

1) People who hold money and are opportunistic would tend to hold XRP. They would do this because anyone making a payment to a destination XRP was liquid to would need XRP to buy the destination asset. So holding XRP would give them a broad choice of opportunities to profit by facilitating other people's payments.

2) Companies that need to make payments into lots of corridors XRP is liquid to (think Uber or AirBNB) would tend to hold XRP as well. They can buy it very cheaply by facilitating another person's payment by providing the fiat to the destination. They can then make payments to any corridor XRP is liquid to by paying only half the normal spread since they are already into XRP.

Both of these factors would drive demand which would be expected to increase the price.

 

@Hodor Do you know if facilitating payments is a factor included in the cost savings of xRapid? Or is it another potential saving on top of the percentages we’re used to hearing?

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1 hour ago, Hodlezerper said:

Hey Chris, one argument that I've never had anyone give any decent answer to is velocity. How might the speed of XRP affect supply? I think this is nearly impossible to analyze, but maybe you can get close? Maybe there are some historical metrics and if you can simply plug in the turnaround it helps. 

If you mean the XRP the world currency, and velocity in the traditional monetary economics sense, then the answer is between 9 and 13 in the long term.

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