Just before Christmas, on 13 December, I did something daft. Something I am little bit ashamed of. I bought runaway cryptocurrency XRP, also known as Ripplecoin, or Ripple. There were so many stupid things about this trade I shudder to mention them. I did not really understand XRP, and still don’t, which breaches one of Warren Buffett’s golden rules. Also, I jumped on a bandwagon, which breaches one of my own.
X-rated trade
XRP was trading at 50 cents at the time. I repeated my error on 14 December and 15 December, buying at 59 cents and then 85 cents. In other words, I chased the price upwards, breaking another self-imposed rule. Naturally, I have been kicking myself ever since. All the way to the bank.
Currently, I am 534% up on my initial trade, and 404% overall. Doing the wrong thing can work, the exception that proves the rule, except that with crypto currencies, there are no rules right now. Buying them is pure speculation (oops, yet another rule broken).
Bit of fun
I bought XRP after noticing that its price had doubled from 25 to 50 cents in a day. As bitcoin sank, Ripple was making a splash. It started 2017 at just $0.006 and ended the year an incredible 36,000% higher. At time of writing, it trades at $3, having dipped 35 cents overnight. So, just as volatile as bitcoin.
Ripple is now the second largest cryptocurrency with a market cap of $129bn, less than half bitcoin’s $270bn, but comfortably ahead of third-placed ethereum at $98bn. Bitcoin currently has few practical uses, with slow and expensive transactions, but that is not a problem with Ripple. It is a payments network for sending money and assets across borders quickly and at minimal cost, avoiding traditional fees and charges.
Transactions take three or four seconds, with fees standing at a millionth of a coin. Its network can run up to 1,500 deals per second compared to fewer than 10 with Bitcoin. This digital coin has an edge.
Chasing the moon
XRP was set up by a company, Ripple, rather than decentralised hackers, and has already run partnerships trials with the likes of American Express, Santander, UBS, and a few days ago, a consortium of Japanese credit card companies, who will use its blockchain technology. There are constant rumours that Amazon is about to sign up, which would send the price to the moon, but right now they are just that, rumours.
In this respect, buying Ripple is like investing in a technology start-up, rather than a cryptocurrency. Many traders see this as a good thing but experienced investors will know that investing in young tech stocks is risky. If all those big banks said to be lining up to use its technology develop their own blockchain alternatives instead, Ripple could sink without a trace.
Crazy days
It reminds me of mobile money hope Monitise, whose shares flew in 2014 and 2015 on the assumption that Visa and others, including Santander, would use its mobile payments technology. Then big guns such as Apple and Google developed their own payment tech and it was suddenly game over for Monitise.
Speculation is the main force driving XRP right now. Sensible investors would not buy it at all, even if it does smash bitcoin this year. As I have written before, cryptocurrencies will drive you crazy.Â