By Will Bartlett
The CEO of Ripple, Brad Garlinghouse, has indicated that the company plans to run an IPO in the next year or so. Recently, the price of Ripple has been languishing, and more funds would help to speed up the expansion of the protocol and move forward on many more projects.
IPO Affecting the Price
The big question everyone is asking is about XRP’s price and how it would react to this IPO. No one can really say for sure, especially with so much of the cryptocurrency industry being affected by outside factors (economic and political). However, one can make projections based on how this would theoretically affect stakeholders’ beliefs about the future of the company.
For example, an IPO would likely boost the price of XRP in the short-term, as increased funding for Ripple would likely mean their marketing budget would go up and they were more likely to expand. With this logic, more traders would buy XRP in the short-term as a form of “frontrunning” the capital raise.
In the long-term, however, this indicates an infeasibility of operations and the need for additional funding. Confidence in the strength of the protocol is not strong and this definitely won’t help. There have been fewer inroads than were hoped for in disrupting the global money transfer system, and this could seem like a last-ditch effort.
Another perspective is that with fewer XRP sell-offs coming from Ripple, the price wouldn’t have the same downward pressure on it and may end up doing better. Obviously this is all theoretical, but it is interesting to think about from an investor’s perspective.
What Does an IPO Mean?
It really depends on how you look at a potential IPO. For a while, Ripple has been funded largely based on the sale of XRP tokens, which has made it hard to claim that they were entirely separate entities. Many analysts have called “foul” on the way that they inflate the overall worth of the company by claiming reserves of XRP as assets and selling these same assets for funding.
So it may be considered a step in the right direction if Ripple can raise money through more traditional means. This would separate some of the dependency on XRP and create an alternate funding method for the company that could be useful going forward.
Additionally, an IPO would represent a major increase in legitimacy for the blockchain sector as a whole. Ripple is one of the few companies that is well-positioned to do this (with Coinbase being another) and moving forward with this plan could likely have a strong effect on mass adoption.