A prominent XRP community commentator suggests why banks could utilize XRP amid what he believes is a looming financial crisis.

Notably, XRP maintains resilience amid bearish pressure, holding firm above the $2.2 price level despite struggling to break beyond it. As the broader crypto market enters another consolidation phase, XRP has faced a roadblock to its recent recovery push.

However, community pundits such as Versan Aljarrah, co-founder of Black Swan Capitalist, believe the asset’s long-term potential remains bullish. Aljarrah recently resurfaced a video analysis titled “Why Banks are Holding XRP” to explain how XRP could fit in the financial scene.

A Looming Financial Collapse?

In his presentation, Aljarrah argued why XRP could become important in overcoming a potential collapse of the financial system. He warned of a deepening global liquidity crisis. 

Specifically, Aljarrah linked the situation to Blackstone’s default on a $562 million debt, suggesting this could act as a catalyst for a cascade of margin calls in 2023. Such a development may trigger a domino effect throughout the markets.

To bolster his case, Aljarrah also presented commentary from various financial leaders. He first referenced a CNBC interview featuring Ed Deforest, a Senior Vice President at Moody’s Investors Service. Deforest noted that rising debt costs and deteriorating economic conditions are increasing the likelihood of more defaults. 

Speaking on this, Aljarrah stressed that margin calls have not yet materialized fully and that leveraged investors, those who borrowed heavily to invest in stocks and real estate, will be most vulnerable when the reckoning comes.

Institutions and Individuals Deeply Overleveraged

He then highlighted comments from Doug Casey, a best-selling author, who stressed that inflation might spiral much higher unless an overwhelming deflationary event occurs. 

Casey pointed out that both corporations and individuals are deeply overleveraged, and if economic activity slows, defaults will skyrocket. Aljarrah agreed, stating that the debt crisis could rapidly lead to widespread bankruptcies, intensifying pressure on an already fragile financial system.

He further explained that as margin calls force businesses to liquidate assets, prices will plunge, feeding a vicious cycle of selling. The pundit warned that this liquidity crunch, once it reaches the real economy, could result in restricted access to credit for businesses and consumers alike. This may usher in a prolonged phase of economic stagnation.

Further, another comment on Aljarrah’s video came from Larry McDonald, CNBC contributor and author of The Bear Traps Report. McDonald mentioned that systemic risk indicators suggest one of the highest probabilities of a stock market crash within 60 days. 

Interestingly, he suggested that each 1% interest rate hike removes about $50 billion from middle-class families, which compounds financial strain.

XRP Could be the Solution

Meanwhile, as financial conditions worsen, Aljarrah presented XRP as a solution. He spotlighted the utility of XRP and its underlying technology in injecting liquidity into the financial system. 

The market pundit then featured an interview with Rosa Rios, a former U.S. Treasury official and Ripple board member, who explained that Ripple, and by extension XRP, plays a major role in facilitating cross-border payments.

Aljarrah noted that XRP’s on-demand liquidity function could become crucial when traditional financial systems falter. He stressed that as central banks prepare for liquidity shocks by holding gold and potentially XRP, the Ripple protocol already fits into central bank payment rails. He speculated that once the financial collapse unfolds, a shift toward utility tokens like XRP could follow.

Further, the video also included comments from Ripple CEO Brad Garlinghouse, who criticized regulatory approaches in the U.S. and advocated for frameworks that support innovation while protecting consumers. 

Aljarrah believes that once the liquidity crunch hits, the demand for XRP will surge, potentially driving up its price, especially if legal uncertainties surrounding the asset, such as the SEC lawsuit, are resolved soon.