Ripple, the company that issues XRP (XRP -0.27%), just made a play worth upward of $1.2 billion. In short, on April 8 it acquired a prime broker called Hidden Road, which will now integrate XRP's ledger into its operations.
This purchase will grant the coin a new tailwind for more than one reason, and the long-term payoff could be significant for holders. Here's why.
CRYPTO: XRP
Key Data Points
One more piece of the financial infrastructure puzzle is now in position
With its acquisition of Hidden Road, Ripple now has an important asset in hand. In short, prime brokers like Hidden Road offer services to financial institutions including financing for foreign exchange transactions, financial derivatives, and transaction clearing. Owning it and having it use XRP as part of its back end implies several things.
The most obvious thing is that XRP's ledger will now experience a higher volume of money changing hands than before. Before the acquisition, Hidden Road cleared more than $3 trillion in annual transactions across its clientele of more than 300 institutional customers. The volume from those customers will now effectively be handled partially by XRP's chain. And stablecoins on the chain will be used as collateral for transactions as needed.
Higher volumes make the chain look like a more appealing place to do business for its target users. Another key factor is that, per Ripple CEO Brad Garlinghouse, using XRP instead of fiat currency to clear transactions will enable Hidden Road to offer dramatically speedier transaction closing times compared to its prior approach. So there's now a new incentive for users to flock to a platform that runs on XRP. That's especially true for users that need to perform a lot of foreign exchange transactions and money transfers across international borders, both of which are served highly efficiently by XRP's chain already.
But perhaps the biggest advantage of the acquisition is reputational. Ripple, and by extension XRP, is now undeniably a major financial infrastructure provider to the companies that operate the traditional financial system. Those companies are now going to be increasingly exposed to the advantages of using cryptocurrency solutions like XRP to handle load-bearing financial plumbing. They'll also be contributing to the value of the ecosystem on XRP's chain simply by doing their normal operations in the traditional financial sector. And that's likely to drive more adoption of the coin in the long run.
This opportunity is barely off the runway
Buying Hidden Road synchronizes cleanly with Ripple's strategy of using XRP as a lever to create a business that blurs the line between fintech and financial institution. But it'll take a good while before that strategy translates into higher XRP prices directly, assuming it ever does.
Stimulating demand for XRP is different from building platforms that use it to provide better services to customers, though the two concepts are closely related. Remember, the users of Hidden Road do not necessarily need to be using and holding XRP themselves, though they have an efficiency incentive to do so. Ripple is working on additional projects, like a cryptocurrency custody service that could make it even easier for its users to onboard themselves to XRP, but even that might not convert them in a way that moves the coin's price noticeably on any given day.
The takeaway here is that as long as Ripple is building an ecosystem of platforms and services that center around XRP, its actions will almost certainly boost the coin's price over the long term, but probably not do much of anything in the short term. For investors, it's not premature to be buying some XRP in anticipation of that long-term return, so long as they understand that they'll need to be holding it through a huge amount of volatility, downturns, and uptrends between now and then. Just make sure to keep your expectations in check here; Hidden Road is an important step forward for the chain, but it's just another brick in the foundation that Ripple is building for the coin's future, not the final touch on the cathedral.
