Ripple Steals Bitcoin’s Thunder, Surges 1,184% in a Month

Ripple Steals Bitcoin’s Thunder, Surges 1,184% in a Month
In 2017, bitcoin became a household word among investors. This year, it may be Ripple’s turn.

XRP, a five-year-old digital currency offered by the San Francisco startup Ripple, has soared 1,184% in the past month alone, quickly becoming the second-largest crypto-asset behind bitcoin and adding 42% in the first days of 2018.

Such moves have become almost normal in the tumultuous virtual-currency mania of the past year. Ripple, like a bevy of other crypto startups, has benefited from the blind hope many investors are placing in largely unregulated and loosely defined bitcoin-related business. What’s surprising about Ripple, though, is some of the differences it has with bitcoin, the largest cryptocurrency.

While both focus on electronic payments, bitcoin is governed by a fractious global array of technologists and antiestablishment libertarians. It was created nine years ago to reduce the power of big banks widely blamed for the financial crisis.

XRP on the other hand is centralized around a single for-profit company, Ripple, that has courted banks with a promise to reduce their costs. While some banks like Spain’s Banco Santander SA and Bank of America Corp. have signed up for Ripple’s international money-transfer services, many large players such as Citigroup Inc. and HSBC Holdings PLC have stayed away and are pursuing their own payment improvements.

Ripple hasn’t disclosed how much money banks are moving over its payments network, which offers software to transfer dollars, yen and euros more quickly and inexpensively. It says it has signed up about 100 banks, but that is a fraction of the 16,600 institutions that use Visa Inc. or the thousands that use the cooperative that runs the international bank messaging service, known as Swift.

Investors have been lining up anyway. XRP’s rise in 2017 was 24 times steeper than bitcoin’s own ascent. Overall, the company has sold 38 billion tokens, which are called XRP by some and Ripple by others. The market value of those tokens, according to research site coinmarketcap.com: about $124 billion.

“It’s amazing what’s going on,” said Chris Larsen, Ripple’s co-founder and chairman. “You’ve got to be standing in the middle of the road when the luck-truck hits you.”

A former online lending specialist who co-founded Prosper Marketplace Inc., Mr. Larsen owns roughly 5% of the outstanding XRP tokens, according to a person familiar with the company. That stake is now worth about $16 billion, at current market prices, up more than 500-fold from its $30 million value a year ago.

The huge rise shows that “real utility matters,” says Ripple CEO Brad Garlinghouse. “Real customers matter.”

Despite bitcoin’s popularity among investors, its utility as a payments platform has suffered due to network delays and rising transaction costs. And many bankers still distrust bitcoin, with JPMorgan CEO James Dimon last year calling it “a fraud.”

Ripple, meanwhile, has become a cash-flow positive, profitable business, according to Mr. Garlinghouse. That is a rarity among crypto startups, though a big part comes from the XRP sales themselves in addition to the fees Ripple generates by selling software licenses and collecting fees on individual money transfers.

Then there are the 61 billion tokens that Ripple owns and hasn’t yet sold. Those have soared to a value worth about $200 billion. While the lofty sum could plummet at any time, it is still a staggering amount, greater than the cash hoards of nearly every company the S&P 500, including Microsoft Corp. , which has $138 billion.

Also, since the XRP held by Ripple isn’t easy to trade like a major currency, Ripple couldn’t quickly convert major amounts of XRP to dollars without risking a crash in XRP’s price, a possibility that has made some investors nervous.

To counter those criticisms, Ripple took 90% of its remaining XRP holdings, about 55 billion tokens, and put them in 55 separate contracts designed to prevent the company from tapping more than 1 billion tokens in any one month.

At the beginning of 2017, Mr. Garlinghouse, a 46-year-old former Yahoo and AOL executive, took over the CEO spot from Mr. Larsen, who remained chairman. The Topeka, Kan., native impressed Mr. Larsen with his blunt assessment of some of Yahoo’s past problems.

Mr. Garlinghouse, who joined the company as president and chief operating officer in 2015, has a stake of about 6% in Ripple, according to a person familiar with the company.

Despite the surge in XRP’s value, Ripple, like all crypto companies, carries big questions. One is whether more banks will adopt it instead of choosing payment projects where they have more control and a greater stake. There are also well-funded startups, including R3 and Digital Asset Holdings, which recently scored a contract from Australian exchange operator ASX Ltd.