Market Volume as an Indicator
Ripple (XRP), Cardano (ADA) and Stellar (XLM) were three of the hottest altcoins of 2017 all seeing explosive growth to storm to the top on CoinMarketCap.com. All three are working to become new financial transaction means promising fast cross-border payments and partnering with banks and businesses to expand. Yet despite the hype, Litecoin is still the market leader in liquidity when compared to market cap.
The evolution of the crypto-market is full of volatility with most digital coins trading on news both positive and negative. Many of the top names have been around less than one year and yet find themselves worth billions. Crypto-markets are propagating worldwide allowing for near instant trading of digital assets which are only limited by the power of an internet connection.
Despite the hype, Litecoin (LTC) continues to dominate in trading volume. Volume and liquidity allows price stability but also allows for movement. Limited liquidity prevents a large movement in transaction volume and can lead to wide bid-ask splits causing increased volatility in an assets value. During the recent market sell-off we saw this with some of the largest names in crypto with Ripple (XRP), Cardano (ADA) and Stellar (XLM) moving big to the downside followed by large recoveries despite not much change in volume. All the while Litecoin (LTC) continued chugging along indicating acceptance and use even in a down market.
Litecoin Liquidity Explained
Litecoin has long been the market leader in volume and liquidity as a percentage of market cap. With a market cap at $14 billion per CoinMarketCap and a 24-hour market volume of $1 billion for 4.1% liquidity to market cap. As we will see with Ripple, Cardano and Stellar 4% is a good healthy volume.
More interesting, the last 7 days which covers the recent sell-off and recovery shows what we have long believed with market volume decreasing during a sell-off and increasing into strength. As crypto-markets are volatile from day to day and even intra-day it is hard to say a “bull” or “bear” market. It is more of a momentum indicator and points to holders not interested in selling weakness but excited to buy strength.
Here we see with the help of top-notch graphic artists that volume followed price over the last week. With price declining, volume decreased. As price stabilized volume held firm and is showing recovery as the price starts to recover today. Watch the volume over the next few hours to see if it follows price.
Ripple Market Volume Explained
Ripple promises to serve as a cross border payment platform offering fast, cheap payment remissions to banks and financial institutions. The list of partners is long with banks like Santander, Shinhan, and American Express among the largest. Despite the list, Ripple has never competed with Litecoin on total liquidity.
Ripple has a market cap at press-time of $77 billion and total volume of $1.9 billion over the last 24 hours. Total liquidity on the Ripple network is 2.4% with total volume just below twice Litecoin’s despite the much higher market cap. Ripple is a bit different product however which the XRP token being used outside of exchanges to send and receive payments. In the end however, these cross border payments still need converting to fiat currency for banks and financial institutions to use it as a viable system. With only $2 billion in total volume this limits the growth potential of Ripple for now.
Unlike Litecoin which has seen a bit of a recovery, Ripple has been in some downward price pressure which reflects in the decreasing volume. Watch the volume for an uptick as a possible indication of strength in price. If it happens as we suspect, will be sure to pat ourselves on the back in our next article.
Cardano and Stellar
Our graphics team refused to make more charts so we will review the numbers here. Cardano has a market cap today at an impressive $22.4 billion placing it solidly ahead of Litecoin. As we recently covered, some wallet issues have plagued the network and trading has reflected at only $276 million. Total liquidity less than half of Ripple at 1.1%. Any news on Cardano has the ability to cause wide swings but limited trading also does not reflect accurate value of the ADA coins.
Stellar is a competitor of Ripple for cross-border payments and point-of-sale crypto payments direct to businesses. While not as big as Ripple it has seen outsize growth in the last 6 months and now sits at $11.6 billion with total volume over 24 hours of $172 million. Total liquidity just above Cardano at 1.5% but less than Ripple and far behind Litecoin.
Volume = Stability and Follows price
None of this stands 100% of the time. Volume is simply an indicator. Litecoin (LTC) is a maturing coin which has been around for years growing acceptance and users while Ripple (XRP), Stellar (XLM) and Cardano (ADA) are part of the second generation blockchain economy. Continue to watch the volume on the market leaders and see if it indicates market direction as we think it does.