3 Major Factors Impacting the Price of Ripple (XRP)
Ripple (XRP)–After having a breakout start to 2018, Ripple hit a new low of 0.90 USD yesterday as the cryptomarket saw one of the worst corrections in recent years. With the price of Bitcoin plunging below 10k USD for the first time in months, XRP and the majority of the market was reeling in the red. As of writing, XRP has regained most of its pre-dip valuation, trading at a comfortable 1.70 USD, up almost 100% in 24 hours.
In light of this difficult correction, here are a few of the major factors impacting the price of XRP going forward:
Never forget, cryptocurrency is as much a market for profit and loss as the stock market. The lack of regulation, coupled with the murkiness in which most exchanges operate, allow major players to manipulate the market in ways that would not be allowed, or at least not go unchecked, in the traditional world of securities. There is still a naivety in cryptocurrency that shuns the presence of these players. Amateur or casual investors in the stock market have an overt awareness of the forces they are up against: Wall Street, Big Banks, etc. It’s a game they look to participate in, make money from and even speculate, but not to the extent that they would control the market or predict its outcome with any regularity.
Cryptocurrency is a different world. Ignored by the mainstream media, banks and financial titans for most of its existence, the average investor in crypto has been able to speculate, and do so successfully, in spite of this absence. Cryptocurrency also attracts a zealous sort, either enamored with the dogma surrounding the libertarian ethos of decentralized currency or compelled by the budding of a new revolutionary technology. These sorts are not in cryptocurrency simply for the profits, but a belief that the world will be changed, and they are the harbingers and early adopters that will drive it forward. In either situation, amateur investor or enthusiastic supporter, the behavior of the market can be difficult to cope with in light of the tactics that manipulate the market. The market does not behave rationally–an entropic lean that has spawned the advice almost ubiquitous among cryptocurrency circles: hodl.
The ability to weather the storm of market changes is not only beneficial to an investor’s short term sanity, but their ability to profit in the long-run. It’s better to not be swayed or have an overt reaction to the market when it is difficult to predict.
Ripple is no more immune to market manipulation and unrealized expectations in pricing than any other currency. Last week, despite dipping in double-digit losses, XRP rallied in the aftermath of the MoneyGram announcement. However, the good news was short-lived: within an hour the price was back to its steady decline, unable to eclipse the recent high it had achieved, and barely touching a fraction of its previous all-time high. So what happened? A deal as big as MoneyGram, with the world of cryptocurrency starved for legitimate adoption, should have had investors scrambling to purchase XRP. Instead, savvy traders were ready to capitalize on the market, purchasing large amounts of Ripple for cheap, driving the price up and then selling off to the investors afraid of missing out. The steady downward pressure of selling, coupled with previous XRP investors looking to sell at an opportune moment or cut their losses, created a downturn on the very day that most thought Ripple would go heavy in the green.
So what can you do? If you’re not attempting to day-trade or time the market, then keep in mind there are forces out of your control when it comes to pricing. Dollar Cost Averaging is one effective workaround to avoid feeling burned by the constant price shifts of cryptocurrency. Another is finding currencies you believe to be undervalued (and that the majority of the market has yet to become aware of) and building a position in that currency irrespective of its short term price. Case and point: if you believe XRP is going to 10 USD this year, the previous ATH of 3.80 is still a cheap investment.
Building Excitement Around Financial Adoption
MoneyGram, as addressed above, created a short price increase in XRP but overall had little of the impact that most investors would have expected, given a partnership of that size. However, we have seen this pattern before with XRP. Let’s look at the final quarter of 2017, prior to XRP breaking out of the 0.25 USD range. Here are just a few of the positive announcements:
Cuallix became the first financial service to use XRP for liquidity in cross-border transactions; American Express adopted the Ripple technology for U.S.-U.K. based money transfers; Michael Arrington, founder of TechCrunch, created a hedge fund that would deal exclusively in XRP.
All of that, and the price of Ripple could only bounce around the 0.20 – 0.25 USD range, with some weeks seeing the price dip back into the teens. Now imagine Ripple, valued at over 1 USD, with the price fluctuating nearly as high as four dollars. The price of XRP tends to exhibit an accumulation phase before taking off again, with the price steadily declining to a solid base during that time-frame. There are two reasons for this occurrence:
- One Hundred Billion Coin Supply. 55 Billion XRP is locked up in escrow and will be released monthly over the course of several years. But at a circulating supply of 45 billion XRP, that’s a lot of currency to be traded around. An average investor could buy/sell tens of thousands of XRP and not make a dent in the market the way Bitcoin or other low-cap coins would be impacted. This creates a market where numerous hands must be exchanged before the price can begin to go up. It also requires a steady on & off of investors, in particular the early adopters, before the expectation in price can match the market price. An investor in at 0.001 USD is making a fortune by selling at 1.20 USD, whereas the compulsion to sell at a higher price is greater for the investor in at 1.10 USD.
- Less Fervent Following. There is a strong base of ardent Ripple supporters, but also an equal number of detractors. Ripple suffers, at least among cryptocurrency enthusiasts, for its perceived relationship with the banking industry. Charlie Lee, founder of Litecoin, has gone on record stating that XRP should not be considered a cryptocurrency, or listed on like-minded exchanges, because of its lack of decentralization. While many investors have flocked to XRP within the last month to get in on the profits, Ripple still lacks a zealous investor base, willing to hold and drive the selling price up, at least when compared to a currency like Bitcoin.
The takeaway is that the price of Ripple does not hinge on day-to-day news in a manner that most would expect from the market. You might see a shortening of the accumulation phase this time around, in particular if Western Union or another major money-transfer company is announced, but it is likely to take time before we see another exponential increase in XRP pricing. If you are planning to go long on Ripple, look at the lulls in price as a way to increase your own position at a discounted rate.
Lack of Fiat Pairing & Impact of Bitcoin Valuation
At present, Ripple suffers from lack of availability on exchanges offering direct fiat paring, which means that potential investors cannot directly purchase XRP. This plays into the price of Ripple for a number of reasons:
- It becomes more difficult to implement dollar-cost-averaging and other strategies. Let’s say you intend to buy Ripple every two weeks with your paycheck. Now, instead of buying XRP direct with fiat, you must first purchase crypto that can then be exchanged for XRP. For many U.S. based customers, this means first purchasing through a service like Coinbase, which can take up to a week for the actual cryptocurrency to be deposited in your account. It then requires a transfer to another exchange (Binance and Bittrex being popular options), and traded for XRP, with the standard collection of fees eating into profits along the way. At the very least, this is not an efficient process.
- Dependent upon BTC valuation. XRP, like almost all cryptocurrencies, is valued in Bitcoin rather than a comparable fiat amount. Yes, the markets were down this past week. But when you see popular media outlets declaring Ripple “crashing 50%,” it doesn’t tell the full story. The price of Bitcoin was down, which necessitated that the per-satoshi valuation of XRP and other coins would also decrease. If people started to value XRP more than Bitcoin, it’s possible there would be an increase in Ripple price when Bitcoin plunges. However, the way most exchanges are constructed, it favors the opposite occurence for the very reason listed above. People can’t cash out with XRP. If they want to pull their money from the cryptomarketplace, whether due to plunging prices or profit-taking, they must first trade back into Bitcoin or Ethereum and go from there. This keeps Bitcoin, with its limited supply of 21 million coins, in an artificial high demand that would not be the same with ubiquitous fiat/XRP pairings.
If Coinbase or a similar exchange were to offer fiat/XRP pairings, at least for Western customers, it would bring an end to Ripple’s reliance upon BTC valuation and allow the market to better place the price of XRP. While many crypto enthusiasts enjoy the idea of crypto being valued in crypto (thus downplaying the importance of government fiat), it’s not convenient at this time and places too much emphasis on Bitcoin despite the latter slowly losing market share. As more exchanges come online, in particular those offering the direct purchase of XRP, not only will the price of Ripple takeoff, but the market as a whole will begin an independent valuation as opposed to being seen through the lens of BTC.