Traders and investors should focus on the market capitalization of Ripple. The question they should ask themselves while buying Ripple is whether the prevailing market cap is rational assuming even the most bullish potential scenarios going forward. Ripple has an end use case scenario which provided us with a basic framework for its valuation. Ripple aims to be a “bridge currency” that many financial institutions use to settle cross-border payments faster and more cheaply than they do now using global payment networks, which can be slow and involve multiple middlemen. Bitcoin could be used to do this too, but Ripple can settle 1,000 transactions per second, compared with Bitcoin’s seven, and its transaction fees are much lower.
This is Ripple’s so called ‘secret sauce’ and the reason why its management believes the currency’s true value is much higher. The company says that more than 100 financial institutions are using its technology. But it remains to be seen just how seriously big banks and financial institutions use ripple as a currency itself. Now let’s try to do a quick back of the envelope valuation for Ripple. Here is one possible way to think about this. Assume the global daily foreign exchange volume is USD 5 Trillion. Let’s assume Ripple has 10 percent market share and moves around USD 500 Billion a day using the XRP network for major banks and financial institutions. Now let’s assume, in time, Ripple can capture 0.1 percent of the notional sum above as revenue. That amounts to USD 500 mn of revenue per day. That’s USD 15 bn a month and USD 180 bn a year of annual revenues. Assuming no costs and using a simple (and generous) forward revenue based multiple of 2, one can value Ripple at USD 360 bn.
At Ripple’s current price of USD 2, its market cap stands at $80 bn. So if we were to use our above framework (and the reader can tweak around with the numbers to arrive at his/her own fair value), we can arrive at a target price of above $8 which implies a 4x return from here.
source :http://www.financialexpress.com/opinion/how-is-ripple-valued-here-is-a-framework-for-valuing-this-cryptocurrency-everything-you-need-to-know/1014312/lite/
