In a recent post on X, prominent pro-XRP lawyer Bill Morgan threw a curveball into the ongoing discussion about XRP’s price performance.
Using Metcalfe’s Law, a principle initially formulated in the context of telecommunications, stating that a network’s value grows exponentially with the user base, Morgan questions why XRP’s price remains stagnant despite XRPL’s increasing activity.
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Morgan highlights the rapid expansion of the XRPL ecosystem, pointing to the integration of NFT functionality as a prime example. Despite this growth, XRP’s price has remained essentially unchanged for the past five years, prompting the question, “Why is the price generally flat compared to 5 years ago.”
Morgan poses two possibilities to explain this apparent disconnect. He said, “Either Metcalfe’s Law improbably does not apply to the XRPL and its native token XRP or other significant dynamics are at play holding back its price.”
Applied to cryptocurrencies, Metcalfe’s Law asserts that a network’s value and utility increase exponentially as the number of users or participants grows.
When people ask me if XRP’s price is suppressed I think of two words: Metcalfe’s law.
Given the growth of projects on the…
— bill morgan (@Belisarius2020) December 13, 2023
Certain community members suggested Ripple’s monthly escrow release campaign might be the cause. Some said that even though Ripple locks back 800 million XRP each time, the monthly release of 1 billion tokens reduces the price of XRP.
Morgan brushed these accusations off, pointing out that XRP’s inflation rate was comparable to that of Solana, an asset that has had a significant price increase in recent months. He added that the U.S. SEC maintained its complaint against Ripple that the company uses the escrow to support, not lower the price of XRP.
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XRP’s Large Supply Might Be Suppressing its Price
Fredo Ayala (@Fayala_brash), the CFO of Treasury, a project built atop the XRP Ledger (XRPL) in a post on X, disagreed with Morgan’s take, arguing that a significant gap existed between Solana and XRP in terms of circulating supply.
Notably, there are presently 427 million Solana tokens in circulation compared to a staggering 54 billion XRP tokens. According to Ayala, the XRP Ledger’s developers intended for XRP to be highly liquid as a gas token, which accounts for the token’s abundant supply. He thereby emphasizes that the huge supply now presents a barrier to price growth.
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Ayala declared that this was a real tokenomics problem and predicted that in a bull market, other tokens with smaller liquidity pools, such as Xahau Network’s XAH, which recently adopted the “Burn XRP to mint XAH model“, would do better than XRP. These assets have superior tokenomics, he continued.
Morgan’s tweet has sparked lively debate within the XRP community. Some agree with his assessment, calling for a deeper analysis of the factors influencing XRP’s price. Others remain skeptical, pointing to XRP’s inherent utility and long-term potential.
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