Why the Coinbase Announcement on Ripple (XRP) Is Not the Full Story
Ripple (XRP)–Last week Brian Armstrong, CEO of popular U.S. crypto exchange Coinbase, made waves in the cryptosphere with an announcement that his company would not be adding any new currencies in the near future. While the announcement did not directly mention Ripple, based upon the rampant speculation and number of articles espousing their eventual union, it can be assumed that XRP was heavily alluded to in the statement.
What prompted Coinbase to make this announcement, what was the intended effect, and is this the entire story of Coinbase and XRP?
Coinbase is Not Actually Dismissing the Addition of Ripple
“As of the date of this statement, we have made no decision to add additional assets to either GDAX or Coinbase. Any statement to the contrary is untrue and not authorized by the company.”
If we were take this statement literally, all it says is that Coinbase is not releasing XRP to their exchange at this time. That opens the door for XRP being added next week, next month, etc. Brian Armstrong, who first broke the announcement on his twitter, is also on record stating that Coinbase would be adding more coins in 2018 in an interview with CNBC last December, “The ones that are the most exciting to us that we have on the platform today are bitcoin, ethereum and litecoin, but there’s many more that are going to be added to the platform in 2018.”
Considering a simple search of either Coinbase or Ripple brings up a list of articles predicting the eventual pairing, this is simply an affirmation by Coinbase that it is not their intention to list Ripple at this time. It’s possible they are further along in the addition of another coin, such as IOTA, DASH or another pairing, and don’t wish to confuse their community by alluding to Ripple being the next coin added to the exchange. Again, the addition of an altcoin ahead of XRP seems unlikely given the massive publicity and volume that Ripple is currently experiencing. However, it’s realistic to imagine Coinbase pumping the breaks on Ripple rumors, both for the crypto community at large and their own user base, given the ramifications from the Bitcoin Cash addition. The fallout from that episode, which at best can be described as a debacle and at worst heavy-handed manipulation, has scarred Coinbase so deeply they are afraid to further alienate their user base. Even if their intention was to release XRP in the weeks following the Bitcoin Cash addition, no one can blame the exchange for attempting to regroup and improve on their previous outing.
Improving Upon the Bitcoin Cash Fiasco
In an earlier article, we wrote about how the Coinbase addition would impact XRP pricing and mentioned that the blunder of the Bitcoin Cash implementation could actually hurt the prospect of XRP listing. If anything, Coinbase’s most recent statement is evidence to that occurrence. Let’s look at the fallout from the BCH listing:
- Coinbase was accused by multiple outlets and numerous crypto-enthusiasts of engaging in insider trading. While it was technically not an illegal occurrence (Coinbase is not exposed to the same regulations as something like the New York Stock Exchange), it’s almost without a doubt that foul play took place, whether on an employee or institutional level.
- In response to the insider trading/foul play allegations, numerous Reddit posters and other outlets staged a campaign to move away from the user-friendly exchange. Recently, James Altucher is capitalizing on the sentiment by raising $10 million in an attempt to create a rival exchange that offers much of the user-friendly, easy-to-get-started appeal of Coinbase.
- Coinbase customers were burned in the aftermath of the BCH listing, with wild price swings that saw the coin leap from $3000 to as high as $9000. Even if we write off the price swing as an error on the exchange, it sowed enough dissent and confusion in the pricing of BCash to make any Coinbase investor wary of buying into a new coin.
The last point strikes closest to home in speculating why Coinbase would attempt to quell the rumors of XRP listing. It is possible that Coinbase is taking a deliberate stance against XRP as, what many call, a “centralized” cryptocurrency. But that seems increasingly unlikely given that Coinbase is a for-profit company, Ripple has the third largest market cap of all cryptos, and a high enough volume to generate millions of dollars in transaction fees for the exchange.
What Coinbase Wants
In reality, the Coinbase announcement is an attempt to accomplish three things:
Regain control of the narrative around the company. It must be frustrating for Brian Armstrong to read headline after headline declaring the next move in coin offering that his company is going to make. At this point, speculative narrative has become truth as almost all investors and crypto-enthusiasts take for a given that Coinbase will be making a move for Ripple. This announcement reins in the rumors and begins to shift narrative control back to the company and leaders that are actually making the decisions.
Bring about a price-correction. A correction from an all-time high was looming large for Ripple, but the Coinbase announcement has had the desired effect, dropping XRP price from a high of 3.75 USD to below 3.00 in the day following the announcement. Why would Coinbase want to bring about a premature price correction? Because it benefits their customer-base. The XRP listing on Coinbase is essentially a buzzsaw for the customers that are restricted to or exclusively use the exchange. If the price of XRP continues to pump in preparation for the listing, much as we saw with the price of Bitcoin Cash in the 24 hours preceding its listing, Coinbase customers are the ones most likely to miss out on the largest gains–and to incur the biggest losses. Think of it this way, the rest of the market has had the opportunity to buy into Ripple for prices much lower than the current level, and the eventual Coinbase-listing price. It’s expected in the immediate aftermath of the listing that there will be a fever-pitch in XRP pricing: Coinbase customers leaping at the chance to purchase XRP for the first time and other exchanges pumping the price for profit-taking. Either way, those bound exclusively to Coinbase as their crypto exchange, whether out of simplicity or lack of knowledge on other exchanges, will be the ones to lose out on the XRP listing–at least initially. It would be interesting to see what percentage of Coinbase’s user base also participate on other popular exchanges such as Bittrex and Binance, where they have already been able to purchase XRP. However, we can assume there is a significant portion of the 13 million users that rely upon Coinbase as their sole portal to purchasing crypto. Coinbase allows direct purchase of cryptocurrency through credit card and ACH, an attractive feature for those who dislike the idea of trading crypto/crypto as opposed to fiat/crypto. It’s also probable that a vast number of Coinbase users rely upon the app and the simplicity of the buy/sell setup, as opposed to more complex exchanges that operate on crypto deposit/withdrawals as opposed to direct dollars. Point being: the lower the price of XRP at onset of Coinbase listing, the more Coinbase customers have to profit from the coin (again, in the near term. Long-term XRP value may be much higher than present prices). Coinbase has a vested interest in attempting to make money for its customers. Yes, it’s an exchange, and makes a profit whether users win big or lose everything. But users making profits are users who will continue to invest in crypto. People who get burned badly, especially if they are newly minted crypto-investors, are less likely to return to the exchange or engage in more frequent trades. Remember, there are more than a few Coinbase users who bought into BCH at $3900 and are still waiting to see anywhere close to a return.
Covering their tracks. Probably the most poignant reason for the Coinbase announcement is a simple way to cover their tracks with the XRP listing. It is not likely that Coinbase will turn around and list XRP this week (as others have speculated), because then this statement would further fuel the fire of manipulation. However, Coinbase has made a little headway in squashing further accusations of insider trading and double-downed on its commitment to prevent leaks (or at least would like the public to believe so): “These individuals — and all employees at Coinbase — are subject to confidentiality and trading restrictions.” The announcement appears to be an attempt by Coinbase to create a level and fair playing field for the eventual XRP listing, as well as other coins. Building upon their mistake with BCash, Coinbase will attempt to be more transparent in the XRP addition, as alluded in the post, by announcing ahead of time when XRP will be added. However, this also creates the conditions for an unimaginable pump in XRP, which again, creates the buzzsaw effect for Coinbase customers as described in the previous point. It is possible by “announcement”, Coinbase is referring to how it announced Bitcoin Cash was available upon onset of the listing. It is also possible they mean to make the “announcement” shortly followed by the actual listing to avoid wild price inflation.
Coinbase and the Ripple Effect
It is impossible to say the Coinbase announcement has not had a significant effect on XRP pricing. The coin was down nearly 40% on certain exchanges in the 24 hours following the statement. There were a large number of investors jumping on to Ripple with the sole expectation that the Coinbase listing would be occurring relatively soon. Brian Armstrong is on record saying that Coinbase would be listing more currencies in 2018, despite what may have been said last week.
To those looking for certainty in the future of XRP pricing, keep in mind: it’s crypto, there is no certainty. The common narrative by most media outlets, including The New York Times, has been borderline-envious skepticism over the historic rise in XRP price feeding into hit-piece articles about how much the Coinbase announcement is hurting Ripple. However, be wary of interpreting the statement as a definitive no for Coinbase ever offering XRP on its exchange. Instead, the opposite appears more likely at this time. Most of what the statement says is that Coinbase is committed to trust and transparency with its customer base, and would like to remind people that the only “truth” in Coinbase news should be found on the Coinbase blog or website. Top Canadian crypto-exchange Coinsquare, a service similar to U.S.-based Coinbase, has already committed to XRP listing. It is hard to imagine Coinbase would just walk away from the profits currently being generated on other exchanges as the Ripple furor continues–particularly if XRP continues to challenge Ethereum and Bitcoin for dominance in the market.