XRP Price: Ex-CTO on Payment Costs

What to Know:

• Ripple CTO Emeritus David Schwartz reiterated that a low XRP price increases transaction costs, countering the common assumption that lower prices equate to cheaper usage.
• This clarification highlights the relationship between XRP’s price and its utility, particularly in facilitating large-scale payments and exchanges.
• Schwartz’s comments are relevant for institutional investors because they underscore the importance of XRP’s efficiency and liquidity in payment settlement systems.

David Schwartz, Ripple’s CTO Emeritus, recently clarified his long-held view that XRP “can’t be dirt cheap,” reigniting discussions about the token’s utility and valuation. His comments address a common misconception: that a lower XRP price inherently makes it more cost-effective for transactions. Instead, Schwartz argues the opposite—a low XRP price can actually increase the cost of using the network for payments and exchanges. For institutional investors, this distinction is crucial in understanding XRP’s role in payment settlement systems.

Why Price Matters for Utility

Schwartz explained that when XRP’s price is low, a larger number of tokens are needed to move the same value across the network. This increase in token volume raises transaction costs and introduces friction, especially when dealing with substantial sums. Institutions moving large amounts of value seek efficiency, and higher XRP prices facilitate this by reducing the number of tokens required for each transaction. For example, transferring $1 million requires significantly fewer XRP tokens at a price of $100 compared to a price of $1.

Liquidity and Market Impact

The need to move millions of XRP units for large payments at lower prices can create noticeable market impact, potentially affecting price stability and increasing execution risk. Deeper liquidity is generally associated with higher asset prices, making it easier to execute large orders without significantly moving the market. Schwartz’s perspective aligns with the idea that a higher XRP price supports greater liquidity, which, in turn, reduces the overall cost and risk associated with large transactions. This is a key consideration for institutions involved in cross-border payments and settlement.

Historical Context and Price Targets

The discussion arose after a community member asked Schwartz to comment on XRP price targets ranging from $50 to $100. While Schwartz refrained from providing specific price predictions, he acknowledged past instances in the crypto market where seemingly unrealistic price levels were eventually reached. This includes Bitcoin’s early milestones and XRP’s own surges during previous market cycles. His reluctance to dismiss high price targets reflects a cautious approach, recognizing the inherent volatility and unpredictable nature of crypto assets.

XRP’s Role as a Bridge Asset

Schwartz’s core argument revolves around XRP’s utility as a bridge asset. Higher valuations reduce friction, improve liquidity, and lower the cost of moving value across the network. This perspective is particularly relevant for institutions looking to optimize cross-border payment processes. XRP’s efficiency in facilitating these transactions depends on its ability to handle large volumes without causing significant market disruptions. Therefore, a higher price point can be seen as a prerequisite for XRP to effectively fulfill its intended role in the global financial system.

Implications for Institutional Flows

For institutional investors, understanding the nuances of XRP’s utility and its relationship to price is essential. As institutions increasingly explore digital assets for payment solutions, XRP’s efficiency and liquidity become critical factors. Schwartz’s insights suggest that a focus on utility, rather than solely on low prices, is vital for assessing XRP’s long-term value. This perspective encourages a more informed and strategic approach to investing in and utilizing XRP within institutional frameworks.

In summary, David Schwartz’s recent clarification underscores the importance of XRP’s price in relation to its utility and efficiency in payment settlements. His comments highlight that a higher XRP price can lead to lower transaction costs and improved liquidity, benefiting institutional users. This perspective shifts the focus from XRP’s potential as a speculative asset to its practical role in facilitating global financial transactions.

Related: XRP Signals Next Move: Crypto Derivatives Data

Source: Original article