Hello everyone. Welcome back for another YouTube video. Today I've got a very exciting topic to be discussing with you. And I want to preface this video with how I stumbled upon this piece of information. The information that we're going to be looking at in this one is a uh model for valuing XRP as an asset that was actually produced by Black Rockck's head of digital assets now, Robbie Mitchnik. Of course, he had in 2017 spent a summer with Ripple and ultimately wrote a piece on XRP's future valuation all the way back, I think in 2018. And we're going to look at that. We're going to show you how they work out the value models for XRP and what kind of a high estimate for XRP per unit could be. They look at $30 plus dollars. I think it's about $32 and what a low one could be. We'll go through all of that, but to kind of preface how we stumbled upon this information, it really comes from looking into um XRP ETFs and the question around BlackRock not having filed one yet. I do believe they will in the future. Black Rockck's there to make money and if they see that assets or um um customers demand something, they will give it to them. So, I do think a Black Rockck ETF will come for XRP. But really how I stumbled upon this was looking at all the XRP sort of filings that there are. There's about 93 crypto ETF filings right now. Over a quarter of them have um XRP either in them, you're talking about your baskets, or are solely derived from XRP. And I think that's a major catalyst for XRP's price appreciation, which is why we've been looking at it. It's going to cause a real demand for XRP. I believe once you have that traditional financial kind of vehicle for people that big pool of capital within the United States to invest via you will see it and I think XRP actually beats the likes of Ethereum to get to 10 billion in assets under management. Ethereum's uh the third fastest growing ETF E which is Black Rocks only behind uh IBIT which took 25 or sorry not 25 52 days to get to $10 billion. I think Ethereum took 250. I think XRP actually beat that certainly given how everything is going. Um, but looking at this, it really sort of raised a question, well, why haven't BlackRock filed for a a kind of XRP ETF? And is there any links between perhaps BlackRock and XRP and and Ripple? And of course, there is in the form of Robbie Mitchnik who is the managing director at BlackRock. his official role is head of digital assets at BlackRock. He's been there since 2018. So after he left Ripple at the same time he published this report to obviously the present day and he's a very impressive individual um which we'll look at in this one. So let's start to digest this report that is titled a fundamental valuation framework for crypto assets by none other than Mr. Robbie Mitchnik and Susan Aay June 2018 and he actually joined Black Rockck on August 2018. So very shortly after he published this paper which I think is telling in itself he actually went on to become uh the kind of head of digital assets for um BlackRock. So back to this paper you can see a little sort of pre-word here is all models are wrong but some are useful and we know that you know talk about your plan B models and stuff like this. I don't even know where that guy is anymore about the authors. Susan Aay is the economic and techn technology professor at the Stamford Graduate School of Business. She also serves on the board of directors of Ripple Labs and Coin Center as well as several other technology companies. Um, we can see obviously this is the guy that we're interested in is Robbie Mitchnik is a MBA candidate at the Stanford Graduate School of Business. He spent time with Ripple in the summer of 2017 prior to Stanford. Robbie spent three years at CPP Investment Board in public market investments and principal credit investments. He graduated from Queens University with a BCOM and a BA in economics. He was the medal of commerce winner at in the Queen's class of 2013 and stands in the top 1% of the Stanford GSB class of 2018. You can see why perhaps Black Rockck chose this individual. Quick disclaimer uh that's important that we read as a director of Ripple Labs. Susan holds an equity position in Ripple Labs which in turn has a large position in the crypto asset XRP. also holds various crypto assets directly. All references to Ripple or XRP in his paper are based on only public available information, which is interesting. Let's get into the introduction. Over the past decade, the world has seen the introduction of an entirely new asset class in the form of crypto assets, also commonly referred to as cryptocurrencies, digital currencies or digital assets. These assets which have been made possible through blockchain technology have the potential to fundamentally alter the way value is transferred and stored across the world. In general, crypto assets can be thought of as digital assets where allocations and access rights are recorded in a digital ledger supported by software protocols. These assets have properties similar to global commodities which is what uh an individual Franken Templeton called them and can be transferred digitally, securely and instantaneously across borders. Their potential to accelerate and transform global commerce while reshaping industry has led to a surge in investor interest resulting in a rapid escalation in valuation. Today the crypto asset investment community has struggled to define a coercive framework for valuing these assets. Conventional tools of financial asset valuation such as discount cash flow analysis applied to equities, fixed income, securities, land etc. Marginal cost curves, commodities, physical goods and relative purchasing power, fiat currencies are not generally appropriate for crypto assets. The popular press frequently describes crypto assets as impossible to value due to a perceived lack of intrinsic value. Very interesting. At the same time, others argue that the new asset class is poised to provide real economic value. Crypto assets have a number of distinct features that enable them to be used differently from fiat currencies and that thus opens new uses. These include decentralization, universality across borders. Remember crypto is all about globalization uh transaction processing speed, data storage and reconciliation efficiencies, security, the ability to facilitate trustless transactions and conductiveness to smart contracts that can perform functions such as holding crypto assets in escrow and distributing them in a state contingent fashion. This paper proposes a holistic approach to valuing crypto assets that integrates economic utility and store of value use cases adopting certain principles from prior work done in the space as well as from traditional finance finance principles. Very interesting. The fact this is done on XRP is is interesting uh sort of actu as it were valuation model. Uh you've got demand within that. You've got transaction demand um so on and so forth. You've got storage demand, supply, value per unit, present value. Then we arrive at kind of act three, which is model application BTC and XRP. Model application estimates fundamental value for Bitcoin and XRP. A rigorous and comprehensive attempt to estimate fundamental value for a given crypto asset using this model is an intricate process. Such pursuit in its most comprehensive form is beyond the scope of this paper. Instead, we will attempt to provide a plausible range of estimates for each of the required parameters using straightforward and broadly available information in order to demonstrate this models valuation framework at a functional level. We will use simple binary probabilistic models to account for the significant uncertainty in potential outcomes and define these potential outcomes as a success case and a failure case for each. We emphasize that the success case is not intended to be a most optimistic scenario but rather a realistic or even conservative scenario where the crypto asset achieves some of the potential as it is understood today. We also note that there could be a healthy debate about the magnitudes used here. They are provided here to illustrate the logic of the model. We leave a more thorough evaluation of the magnitudes for future work and we'll talk about that future work in another video. We kind of want to tease that. It says for Bitcoin, we're not that interested in Bitcoin specifically. We're here for XRP. For XRP, we will define the XRP success case as a state of the world in which XRP is adopted as part of a widely used crossber payment standard and in which XRP is adopted for use by financial institutions, corporations and individuals to affect FX transactions which which is what it was designed to do. We will use an estimated 25% so quarter probability for the XRP success case and a 75% probability for the XRP failure case maintaining the caveat that this paper does not rely on any new information into the likelihood of various scenarios such that the magnitudes presented should be taken as illustrative for the approach. The XRP failure case is composed of an estimated 30% chance that crypto assets either gain meaningful adoption for crossber transactions or the government sponsored alternatives prevail. A 20% probability that swift banking consortium manages to innovate and defend its position as the entrenched standard by successfully implementing alternative technology that does not rely on XRP. An estimated 25 5% probability that a scattered collection of competitors create a fragmented set of alternatives. An estimated 10% probability that one out of the set of possible competitors in this subindustry will create an alternative standard. It goes on to say it's very nice they give us the kind of breakdown of of things that they think could happen that could and they only put a 20% probability that Swift will innovate and not essentially use XRP. That's interesting. Anyway, he goes on to say, "In both the BTC failure case and the XRP failure case, the assets will likely have some value, but these values are likely to be sufficiently small relative to the asset current price and their value in each success case such as that we can reasonably assign them values of zero without materially impacting the conclusion of this analysis. Estimated parameter range. So we have Bitcoin here and we look at the kind of um Bitcoin transactional volume estimates and then we have XRP and this starts to get interesting. They start to prophesy what XRP's kind of uh load could be moving forwards. XRP technically XRP was designed for the use case of facilitating crossber payments a market of enormous magnitude. Crossber remittances consist of $1.3 billion per day. Crossber payments constitute of $85 billion per day and forex trading consists of $5 trillion per day. I think that's more like seven today. XRP has the ability to substantially improve foreign exchange transactions by allowing instantaneous settlements, superior liquidity provisions, thereby reducing XRP FX costs and the ability to transact without Nostrovostro networks of which there's like 20 I think3 27 trillion by the way. That's a hell of a lot of I mean that's trillion with a T. Anyway, despite its technical advantages, gaining substantial adoption for the use in facilitating these crossber transactions is an extremely daunting task given the inertia of the international banking system. In our XRP success case, XRP secures high adoption for remittances through the adoption by companies such as money grammar work, Mr. Women's Western Unionics who have already announced pilots or plans to use XRP. Now that's interesting, isn't it? That's extremely interesting. They've already announced pilots to use XRP. Strong adoption for cross remember this is written by the head of Black Rockck Digital Assets by the way. Let's not forget that. Strong adoption for crossber payments and comparatively modest adoption for global forex trading. Limited to lower volume corridors. not well served by financial institutions today. Retail remittances represent the first proven use case for cryptocurrency enabled crossber payments and XRP appears to be the clear early leader in attempting to disrupt the existing costly and inefficient infrastructure in this area with the ability to deliver a large cost and speed advantage over both fear-based retail FX trading and other cryptocurrencies. XRP appears to be poised to capture a substantial share of this space. Corporate payments represent another large opportunity for XRP through it. Though it is unlikely that XRP will achieve the same dominant shares of this market as in retail remittances, large corporations tend to adopt new technologies more slowly and reluctantly than consumers. and certain corporations will likely opt to stay on the swift system despite its technology technological limitations. Ultimately, in our XRP success case, XRP will be adopted by a large minority segment of the market that is most willing to adopt new technologies and from whom crossber payments effect efficiencies gain would represent a strategically critical business improvement and that's why the technology gets adopted because it's an improvement. The enormous foreign exchange trading market is the most difficult category to predict. Even in the XRP success case, many corridors may continue to be served by fiat currency exchange. Rather, XRP's usage for foreign exchange trading between banks will likely be limited to less liquid corridors. Geographically, XRP's adoption pattern will most likely reflect dominant standards in certain emerging market regions rather than single uniform patterns of adoption across the globe. Asia and the Middle East have demonstrated early and broad engagement with exploring emerging technologies to enable more efficient crossber payments as they are less well served by the incumbent international payment system. Outside of faster adopting regions, a large set of global banks have signed on to adopt Ripple's Xcurren software and several central banks have done trials with it, including, by the way, the Bank of Russia. We covered that just the other day. Xcurren does not rely on XRP, but banks that adopt more modern solutions may be well positioned to further improve their efficiency in sourcing liquidity from cross for crossber payments particularly in smaller corridors and thus may be more likely to adopt XRP. Each of these corridors may be individually small but in aggregate may account for a non-trivial share of their transactions. Basic projections for growth rates and XRP adoption share of these three categories of uses under the XRP success case are shown in table two. And it gives you the high and low estimates. So you can see foreign exchange and this is the high one. They're expecting to do daily a potential projection. It does $5 trillion. They're expecting them to do $528 billion of that 5 trillion. So that's nearly 10% of the transactions um by 2030. They're predicting corporate payments to be around about 40%. And retail remittances to to to go around about 75%. So for them to really sort of capitalize on that market and the overall sort of total daily transaction volume is 556 billion. low estimates only have it at 191 billion per day, but still a somewhat decent sort of penetration as it were. It says the calculations of daily XRP transaction volumes in table two include multiplications by a factor of two because FX transactions that use crypto assets involve two transactions uh one to purchase with um originating currency and one to sell for the destined currency. uh using these assumptions we derive an estimation an estimate for daily XRP transaction volume at 2030 of between 190 billion to 560 billion under the XRP success case. It then goes on to talk about Bitcoin and then we come back to XRP. We're going to give you their kind of estimates per value in just a second, but we're already getting a lot of insight in regards to what the head of Black Rockck Digital Assets kind of has to say about XRP yet. They don't seem to have been very vocal about it. Why is nobody talking about this? Why aren't they coming out and and publicly acknowledging this? Well, probably the lawsuit and everything's had a hindrance on that. Um, and I also think there's, you know, there's probably lawsuits and things like this that they could be subject to if they they were to promote a single asset, certainly under the prior regulatory regime. Anyway, goes on to say XRP. So, estimating the value for XRP is similarly difficult. The ultimate structure that the XRP market will take is yet unknown, including the way in which banks and liquidity briders will hold, account for, and exchange XRP. As such, this parameter has the potential to take on a wider range of values. For instance, many corporations currently hold excess cash that is orders of magnitude larger in quantity than what would be required to efficiently manage liquidity needs, suggesting a value for T of perhaps many months. At the same time as the instantaneous settlement capabilities of XRP might enable extraordinary short holding periods between transactions, suggesting a much lower estimate, perhaps minutes. We will therefore use a range of values for this parameter of 0.5 to 10 days. The value of t which by the way t equals weighted average time between transactions per unit of currency in days. The value of T of 0.5 corresponds to a model of the banking world where liquidity is reprovisioned daily to adapt to expected daily needs which would imply a total of two transactions per coin per day one in and one out resulting in the average time between transactions of 0.5 days. A value for T of 10 could manifest if corporates become significant holders of XRP, taking advantage of its functionality as a form of ultra liquid working capital. Such adoption would result in XRP regularly being held for multiple days or weeks in usage in transaction in transactions talks about storage. The total value of all investable assets is approximately $450 trillion and total global household wealth is approximately $300 trillion in a state of the world where crypto assets emerge as an important foundation for the global economy which I think we're getting clarification of certainly since this paper was writtly transactions markets transaction markets these assets are likely to draw significant investment market share from traditional hard assets such as gold as well as forms of other investment alternatives as cryto s capture a share of total investable assets compared to gold's current share 2%. This will imply an estimated combined value of between 11 of 11 trillion on a 12-ear time horizon. I think you're going to get there before then, by the way. Um, we can build to this asset share figure in more granular ways by predicting a plausible long-term distribution of wealth concentration in crypto assets across the global population in the table below which is modeled to follow the profile of a power law distribution. So you can see this is how they're sort of um looking at uh projected storage demand uh disruption. It says this exposure distribution is a stark contrast to today where the number of individuals with digital wes digital wallets is estimated between 20 and 30 million representing just 0.3% or 0.4% of the global population. To date, the lack of widespread acceptance of blockchain technologies combined with technological barriers to ownership have constrained penetration. These limitations are likely to continue to erode in the decades to come. They've been writing that thus far. We're seven years on from this. Consistent with the current trend in which digital wallet penetration has doubled in each of the last three years. In the environment where crypto assets emerge as a core asset class, we believe two to four crypto assets are likely to emerge as dominant standards and as such will likely compose upward of 90% of the total stored storage value of the asset class. Talks about the Bitcoin success case. We want to talk about the XRP one and then we're going to get on to the valuations which we're going to give you in just a sec. You want to wait for this XRP. In the XRP success case in which XRP succeeds in generating significant adoption for crossber transactions, it will achieve the model's key criteria of establishing a robust underlying transaction economy to provide a fundamental underpinning for storage demand over time and X as XRP develops a persistent present within the global financial system. It will also achieve the key criterion of creating widespread expectations that it will be broadly recognized over an indefinite horizon as an instrument of value. Collectively, these two factors will enable XRP to unlock a large share of crypto asset storage demand. Unlike in the BTC success case, the conditional probability of crypto assets gaining widespread adoption within the XRP success case is likely close to one. The reason is that all plausible scenarios in which XRP achieves widespread adoption likely require broadbased acceptance of crypto assets in the global economy. We're there again today, guys. So, this probability would have bumped up significantly. In the XRP success case, XRP could serve as could secure an estimated 15 to 30% market share of the total storage demand value for crypto assets, equivalent to 1.6 to3.2 trillion. Wow. Note that while this estimate for storage demand value for XRP is higher than that for for Bitcoin, it is contingent on the realization of the XRP success case which has a lower probability than the 30% assigned to Bitcoin success case. Now this is written in 2018. Bitcoin has succeeded. I believe XRP is going to succeed in the success case is what we're looking at. It goes on and says number of coins currently in circulation. This has obviously changed slightly. Um and then it says at the present neither BTC or XRP is held in fractional reserve basis in contrast to fiat currency banking systems. This is unlikely to change given the strong incentives from a governance perspective to prevent fractional reserving from being systemically enabled because it severely detrimental effect on crypto value. Therefore, we use value of P to to 1.0. about the discount rate which we'll read very quickly for XRP. It says the historical beta of XRP to the S&P 500 has been lower than BTC. However, over a longer time horizon, XRP is likely to have a modestly positive beta to the global economy given its usage in crossber transactions which are stronger during times of global economic expansion. This effect is likely to be stronger than the negative beta characteristics of crypto assets more broadly. Consequently, XRP should be discounted with a risk premium above that of BTC. This should be close to traditional equity market risk premium premiums than other crypto assets with the US 10-year and 30-year Treasury yield in the 2 to 3.5% range. Uh long-term equity market risk premiums generally consider to be uh 4.5 to 5.5. We use a reasonable conservative 8.5 figure. Wow, that's not too bad at all. We're going to get on to the estimates right now, guys. It says, "The time span of adoption for new technologies under the next XRP heading has steadily compressed over centuries and recent decades. Certain technologies have been successful in transforming an industry and becoming a global standard in less than a decade, i.e. smartphones, Facebook, Google, etc. But these are exceptional cases. A more common time frame for today's transformational technology appears to be a range of 10 to 20 years between inception and widespread adoption. XRP was created in 2012 but began to see acceleration adop accelerated adoption in 2017. At this stage an estimate of closer to 12 years from today, so we're now talking the next seven years for XRP to reach steady state in the success case is appropriately comp conservative. And here it says calculating fundamental value per unit. Now we are able to combine all these parameters by inserting them into the model. Note that the high and low estimates are used to acknowledge the significant impression in assigning values to the most complex parameters. They do not reflect the overall range of potential values that these parameters might take, but instead serve as a plausible range of values within the success cases for XRP and BTC. And the success case they give for BTC, the high estimate is $93,000. Today it's at what 110 something like that. The low estimate is um $45,000. VTC. It says as a final step, we need to convert this into an expected value based on our simple binary model of outcomes. We assign 30% probability the Bitcoin success case and assumed BTC was effectively worthless in the failure case. Therefore, once they take that kind of discount off the 30% case, they essentially apply that between a resulting in a fundamental value range of 13 to 28,000 compressed to trading ranges of six to a year to date at the time of publicing. So, they actually think Bitcoin was undervalued back then. Now, on to XRP, which you all want. And yes, you've seen that correctly. XRP's high estimate given in this paper by Robbie Mitchnik is $32.91. Yes, that's right. $32.91 was given as a high estimate price prediction for XRP by Black Rockck's head of digital assets. This is worth listening to me read to get to this point. Their low estimate is $6.37. still 2x plus where we are today. This represents the potential value of XRP in the present value terms. If the success case is realized as a final step, we need to convert this into an expected value based on our simplistic binary model of outcomes. We assign a 25% probability to the XRP success case and assume XRP was effectively work worthless with the XRP fail case. Therefore, and this brings it right down, the resulting fundamental value range of between $159 to $823 compared to the trading range of 0.49 to $3.72 year to date at the time of pushing. So, the fundamental value range they're giving you is this when they they they factor in their case, which they're giving a 25% probability to. But the fact of the matter is they have given a high estimate of $32.91 here for XRP based on it being successful. I think that is pretty huge that BlackRocks head of digital assets has written a paper in which he gives the reasoning and explanation as to why XRP if it succeeds could get to $32.91. They give the low estimates. to give a range of estimates, but the fact of the matter is $32.91 was in that paper written by Robbie Mitchnik and I think it was a good paper wanted to spend the time to read because of all the interesting things within there in regards to how they work it, what they think could and couldn't happen and of course those valuations are pretty spectacular. Ladies and gentlemen, I do think Black Rockck's going to file that XRPF and I do think a lot of people are saying are not saying what they think right now certainly in regards to XRP. That's it from me guys. I'm going to love and leave you. Thanks everyone for watching. I'll see you in the next one.