The following Q&A is not an endorsement; claims made in the Q&A are not independently verified.
We at CryptoTapas endured a lot of heckle and resistance when we published an article on Ripple titled “Why we do not support nor invest in Ripple.”
In that article, we went through the Emotional, Practical, and Crypto-technical reasons why we do not support Ripple. We also included a few outlandish possibilities of why Ripple might win.
While our opinions were clearly laid out – it did not stop the Ripple community from mocking our stance.
Looks like more and more people who actually do know something about this space are now coming out and speaking their minds before another Mt. Gox incident ruins the crypto space.
The report starts with an outline of the players behind Ripple and Ripple labs, including the connection with Jed McCaleb of Mt. Gox to Ripple and how the company is simply liquidating the XRP coins it controls each month to generate revenue in 100s of millions of dollars out of thin air.
The report talks about how Ripple is one of the most centralized crypto projects ever created. In fact, the report discloses that a mere 100 active accounts hold 97% of Ripple coins. You are talking about billions of dollars’ worth of Ripple sitting in under 100 active accounts; that is probably more centralized than traditional bank accounts of any company, in our view.
The contents of this report are quite revealing, and we asked Demelza to help us with a few questions of our own. She graciously agreed. Below are the responses from Demelza to our questions.
CryptoTapas: Tell us a bit about yourself; what efforts placed you in the 30 under 30 Europe?
I worked for the US Department of State in Punjab for two years, then I moved to France where I did my Master’s in Economics at the Toulouse School of Economics, and then I started my Ph.D. in Business Economics at the University of Liechtenstein. My doctoral supervisor, Professor Dr. Andrei Kirilenko, is currently at Cambridge University, and he is the former Chief Economist of one of the regulatory agencies in the US called the Commodities Futures Trading Commission. I have been publishing papers and researching cryptocurrencies since 2013.
I started my first crypto business in 2014, where I was buying and selling cryptocurrencies in France. Unfortunately, my partner in the business had a knife pulled on him, and we had 40 of our Bitcoin stolen in Rotterdam in the Netherlands when we were doing a cash trade with someone we met from Localbitcoins.com when they still had the local cash feature on their website, which they recently got rid of because of Know-Your-Customer and Anti-Money Laundering compliance.
It was a tough loss of 40 Bitcoin as that was all of my savings. Unfortunately, I still haven’t fully recovered my Bitcoin stash. I learned my lesson regarding cash trades in a hard way. After that in 2015, I decided to go ahead and make a Bitcoin ATM business because that’s the same as me buying and selling crypto to people in-person except I don’t need to be in-person – there is a machine instead.
Out of the blue, I just sent an email to the regulators in Liechtenstein, and I asked them if I could meet with them to discuss my business idea. I met with them in February of 2015, and my partner and I were the first people to present Bitcoin and crypto to them in-person. They accepted our proposal for a Bitcoin ATM, and we got to work on founding a business.
We named the business “Blockchain Büro” because Büro means office in German. It’s still in operation today, but we do not have any Bitcoin ATMs anymore. We do mostly government consulting and advising banks. We built a distributed ledger points system for green carpooling for the Amt für Umwelt in Liechtenstein, which translates to Bureau of Environment two years ago to name an example. My partner in business, Philipp Büchel, runs the Büro and he is from Liechtenstein, and he helps people who are interested in doing crypto business in Liechtenstein get started with the right contacts.
On the other hand, the University of Liechtenstein asked me to develop a class on the topic of cryptocurrencies in 2016, which I began teaching in 2017, and I have been teaching it every year since. I also teach other courses at the University, like corporate finance and principles of finance.
In 2017, I joined Incrementum AG, which is a licensed wealth management firm that has 6 funds and $100 million in assets under management. I’m actually in the process of becoming a shareholder this quarter. We are launching a regulated cryptocurrency fund for professional investors this year, August 16th. The fund invests in physical gold and cryptocurrencies because we do not think the current monetary system is sustainable. People will increasingly turn to hard assets over the next couple of decades. When they do, they will choose between Gold and Digital Gold. If the price of gold becomes too high, then people will buy gold substitutes like Bitcoin. On the other hand, if Bitcoin’s price becomes too high, then people will buy Bitcoin substitutes like gold. Our fund arbitrages between these two asset classes.
CryptoTapas: What methodology and effort goes into your research pieces?
We use two main methods: logical deduction and empiricism. We study the fundamentals in order to understand what coins to invest in, and then we use data in order to understand at what time to make the positions and at what time to close the positions.
CryptoTapas: You quoted Bloomberg quotation in the report that states that XRP could be considered a security; What particular attributes could support XRP as security rather than utility token?
My doctoral supervisor’s boss, Gary Gensler, is the former chairman of the CFTC, and he is the one that said XRP is a security. The reason XRP is a security is because of the Howey Test used by the Securities Exchange Commission in the US. One criterion of the Howey Test is that a third party is responsible for generating profits on the investment. In XRP’s case, the third party is Ripple Labs Inc. because they are the only group driving the adoption of XRP. This is the main reason why Ripple Labs Inc. is now claiming that they did not make XRP. On the other hand, Commissioner Hinman of the SEC said Bitcoin is not a security because no third party is responsible for making Bitcoin’s price go up.
CryptoTapas UPDATE: While we were in the process of getting information from Demelza, there has been a new development with Ripple/XRP. An updated complaint was lodged in United States District Court, Northern District of California, Oakland Division, referring to the SEC guidance on what constitutes a security.
This aligns and strengthens the comments provided above.
The complaint also alludes to California’s advertising laws, claiming that the investors were ‘misled.’ In our opinion, nothing will come out of these appeals, probably a hefty fine to get things wrapped up while the company moves on to print another $300 Million in a month.
CryptoTapas: Even after 16 court cases, Ripple continues to hold its top position in the crypto space. Do you think this has to do with their almost unlimited cash supply and buying power they hold in the media?
Yes, it also has to do with their market makers. They are willing to lend XRP to market makers at zero cost, which allows market makers to add millions in revenue to their bottom line. To manage XRP’s volatility, professional market makers ensure that sell walls in XRP order books on cryptocurrency exchanges are reduced when good news are released and buy walls in the order books are built-up when bad news are released. This makes XRP less volatile than other cryptocurrencies that do not have professional market makers.
CryptoTapas: The true spirit behind Blockchain and Bitcoin is to change the existing banking and financial system. When the blockchain vision comes to fruition, banks and financial institutions power could be undermined. In such a scenario, do you think Ripple will have any relevance?
XRP will not have any relevance.
I am 100% convinced that Ripple team is selling security tokens to retail investors.
XRP (Ripple, Inc.), Libra (Facebook, Inc.), Apple Pay, Google Pay, and JP Morgan Coin are competing for the same goal: They want to become a global currency.
First, XRP does not have access to Facebook’s network of 1.7 billion users. Second, Facebook’s Libra is intended to have a stable purchasing power, which is absolutely required in order to gain adoption as a medium of exchange and unit of account. Libra will be backed by reserve assets, such as fiat currency and government bonds, and should, therefore, be able to maintain low volatility. In contrast, XRP is backed by nothing.
The price of XRP is based purely on speculation.
The main point is that if XRP were able to back their currency with financial assets and stabilize the purchasing power of the currency, then that would mean XRP coins should have no price appreciation. In fact, only the equity shares of Ripple Labs would profit from XRP’s adoption as a global reserve currency. But Ripple Labs is a privately held company. After fully understanding what XRP is, one realizes that XRP’s investment pitch does not make sense at all.
CryptoTapas: Do you think Ripple uses the vast supply of cash at its disposal to manipulate mainstream media?
One cannot be sure who pays at the end of the day, but someone with financial interest has paid for thousands of fake Twitter accounts to be made in order to shill XRP on retail investors. If you read the article, you can read about how easy it is to see that the accounts are fake computer bots that just retweet XRP hype. For example, Twitter suspended and banned many accounts for being fake bots after the bots posted on Demelza’s post, including accounts such as @ceramika74, @de7erv, @XRPBOSS77, and @YassinMobarak.
Ripple Labs, Inc. definitely paid a lot of developers with XRP; in fact, up to 50,000 XRP per developer in order to test RippleNet. Some developers received multiple payments over time. David Schwartz and Joel Katz even disclose on Twitter that they pay people to attend events.
CryptoTapas: What in your view could be one reason why Ripple might succeed?
Every country has a central bank, and central banks are 100-year pump and dump schemes. Central Banks play the same game as Ripple Labs Inc. just on a longer time horizon and with fancier buildings. Dollars, pounds, euros, rupees, XRP; they’re all fiat scams in varying proportions. If Ripple is smart by getting enough important people on their payroll, then XRP could definitely succeed.
CryptoTapas: What happens if SEC does declare that XRP is in fact a security?
They will fine Ripple Labs, Inc. with securities fraud and make them pay a fine, which will be very small compared to how much the team has made by merely printing XRP. The team can walk out with billions but be forced to stop selling XRP to retail clients at that point. It’s actually a great “exit” plan because they can blame the regulators for making the project fail.
Thank you for your insights, Demelza.
It is not just Demelza or us that hold the opinion of Ripple becoming obsolete (unless they change their service offering completely), here is what Julian Villaverde, a senior crypto analyst at Weiss Ratings, has to say about Ripple in explaining how Government-issued digital currency could severely undermine Ripple’s success as a company to Cointelegraph:
“The reality is the traditional financial system is based on trust and reputation. But for most institutional participants, Ripple — as any other newcomer — lacks in both. If the Federal Reserve upgrades its systems to mimic some of the utility of RippleNet, this would severely undermine Ripple’s future chance of success. Our view with Ripple has long been that they need to pivot away from catering strictly to financial institutions and focus more on providing financial products and services directly to the public.”
Another piece of the puzzle is that since XRP (and Ripple Labs) are not decentralized, they could face the existential issue if (and when) a legal proceeding takes place against them.
What holds in XRP and Ripple’s future is something we just have to wait and watch.
Original Image Source: “Ripple coin with smoke on white background” by wuestenigel is licensed under CC BY 2.0
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About the author
RK Reddy holds two Masters degrees, one in Accounting and another in Business Administration with over 15 years of experience in the financial services industry.