Investors want to know what cryptos like Ripple (CCC:XRP-USD) are worth. Unfortunately there’s no tried and true way to put a clear number on where any crypto should trade.
That’s part of the reason the asset class is so polarizing. Most people either hate them, claiming them to be a pyramid scheme, or love them, claiming that they’re the future of finance.
I fall in between, and basically I want to know what Ripple has in terms of real world utility, and the value of that utility.
What’s Ripple Worth?
There are at least a few ways of understanding the value of Ripple. One argument is that anything is worth what someone will pay for it. That’s value. I don’t know that I necessarily agree with that argument, but if that is indeed the case, then Ripple is worth $1.53 at the moment.
But what does that really mean? The answer is nobody really knows where a given cryptocurrency’s value comes from. Since cryptocurrency is so new, investors often look to stock markets for a clue as to what Ripple, or any other crypto may be worth.
Essentially we’re left comparing market capitalization of Ripple against that of similarly capitalized stocks, and then making a subjective judgment as to whether we believe the value of Ripple’s actual business – currency exchange and remittance – justifies it as being equivalent to the stock with which it’s being compared.
Thought Exercise in Relative Value
That puts Ripple ($141 billion) squarely between AstraZeneca (NASDAQ:AZN) and China Life Insurance (NYSE:LFC) and their respective market caps of $141 and $143 billion.
Here’s one way of looking at Ripple vis-a-vis AstraZeneca. In the fourth quarter of 2020, Ripple recorded $76.27 million sales net of purchases which grew to $150.34 million in Q1 2021. AstraZeneca posted Q1 2021 revenues of $7.32 billion. Currency remittance and pharmaceuticals are entirely different industries admittedly, so this is not an apples to apples comparison. Regardless, AstraZeneca recorded 48.8X the sales Ripple did in the same period.
We could do the same for China Life Insurance, but I won’t bore you. In any case, when we compare Ripple against a more traditional company of similar market cap, we end up giving Ripple a premium. Is that premium 48.8X, i.e. the amount by which AstraZeneca outproduced Ripple in pure revenue terms?
The point is not that I can answer that question. I can’t. The point is that no one can, or at least no one has proffered any widely accepted valuation method for cryptocurrencies.
For now, investors have to settle simpler occurrences like Elon Musk declaring that Tesla (NASDAQ:TSLA) will no longer accept Bitcoin (CCC:BTC-USD). Then we wait for the repercussions to reverberate through the markets.
The first person to propose a widely accepted model by which markets can truly understand crypto valuation is going to be a front runner for the Nobel Prize in Economics.
Catalysts Ahead
I digress in any case. So, as I said, investors are often left utilizing the latest catalyst such as news in order to determine where a crypto will go. Ripple investors will want to keep May 21 on their calendars.
Ripple’s ongoing battle with the SEC continues on May 21. The two will have a remote conference overseen by Judge Sarah Netburn. The SEC seeks documents relating to advice Ripple received regarding its regulatory status.
While Ripple has had some promising results prior, the fact is that the case is not settled. Ripple will move after the news related to that meeting becomes public knowledge. So look out for it.
On the date of publication, Alex Sirois did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
Alex Sirois is a freelance contributor to InvestorPlace whose personal stock investing style is focused on long-term, buy-and-hold, wealth-building stock picks. Having worked in several industries from e-commerce to translation to education and utilizing his MBA from George Washington University, he brings a diverse set of skills through which he filters his writing.”
