The Unpredictable Ripple: the Rise and Fall of a Crypto
Journalist and crypto investor Maxim Rubchenko speaks about the phenomenon of the Ripple cryptocurrency.
March 6 has passed, but there was no miracle. Almost ten days ago, a rumor spread over the market that on that fateful day Ripple CEO Brad Garlinghouse and Coinbase chief operating officer Asiff Hirji would meet on the Fast Money program on CNBC to announce the addition of XRP to the listing of the exchange. Aloft on such expectations, the price of Ripple on last Monday increased by 16%, but on Tuesday it started to decline as traders began recording profits, refusing to believe in the reality of this development.
The skeptics were right as on March 5, on its official Twitter account, Coinbase reported that it had not made a decision to add new assets to either GDAX or Coinbase. “Any statement to the contrary is untrue and not authorized by the company,” the exchange notes, reminding that on January 4 it had already announced its unwillingness to introduce support for new tokens and that this statement “continues to stand.”
The fiasco with Coinbase sparked another wave of discussions in traders’ chats between the haters of Ripple, who consider XRP to be an ordinary scam, and fans of the coin, who are confident that it can bring big profits. Both sides from time to time produce the same arguments, which form an objective, but extremely contradictory picture full of different “buts.”
Ripple is certainly a very promising technology based on the idea of creating the “Internet of Value,” where money can move with the speed of information dissemination. The technology is based on RPCA, or the Ripple Protocol Consensus Algorithm, which provides the ability to instantly conduct transactions from the sender to the recipient. In this case, unlike Bitcoin and Ether, transactions are not irrevocable, that is, they can be returned and canceled.
The Ripplophobes see in this a huge minus in the form of harm to reliability. The supporters see a huge plus as erroneous transactions in banks occur regularly (at the end of February, Sberbank acknowledged cases of duplicate charges from its customers’ cards), so from a practical point of view, it is much more preferable for banks to use Ripple instead of the “classic” Bitcoin, in which it is impossible to make changes retroactively.
At the same time, both supporters and opponents agree that this technology can be considered to be blockchain only with great reservations since it does not imply full decentralization as information about transactions is stored on trusted partners’ servers in the so-called “allowed” network. Over the past year, the number of such trusted partners has quadrupled and is now approaching a hundred. On the one hand, compared to the Bitcoin and Ether blockchains, it is nothing. But, on the other hand, each transaction in the Ripple network, in fact, is confirmed by several dozen witnesses, which are major global banks and payment systems. This would be more than enough for any court in case of disputes.
Thus, it can be concluded that the Ripple technology has great prospects, which can be confirmed by regular news that a particular bank conducted successful tests for making payments. But, on the other hand, the Ripple technology and the coin of the same name under the ticker symbol “XRP” are unrelated.
The fact is that Ripple delivers three blockchain-based products for financial structures—xCurrent, which allows banks to execute instant and cheap transactions; xVia, which provides similar opportunities to non-banking entities; and xRapid, which allows increasing liquidity when making transactions in the emerging markets, using Ripple tokens as an intermediate currency.
This means that when a particular bank or payment system reports successful testing of the Ripple technology, it usually refers to the xCurrent and xVia products that do not use XRP tokens. In other words, the demand for Ripple coins is not growing at the same rate.
The news that the Ripple technology has been successfully applied by a particular company is considered by most traders as a signal that the token is growing, either because they do not know about the difference between the technology and the coin, or because they think that the “crowds” do not understand this and will start buying XRP. Anyway, the phenomenon of a “self-fulfilling prophecy” works, when, expecting some movement of price rates, market participants themselves become the catalyst for this movement. In addition, such news is a good reason for pumps, which also move rates.
Regular positive news related to the use of Ripple by banks could contribute to the stable growth of the coin’s rate, if not for the fact that most of the tokens belong to the founders of XRP. Although these funds are now blocked, and the probability of selling them is small, this problem still bothers many. The system invented by the company has blocked 55 billion XRP tokens on the escrow account, from which 1 billion coins will be poured into the market every month.
The algorithm for releasing tokens on the exchange is unknown; however, it is unlikely that the top managers of Ripple, who are actually owners of these tokens, will sell them in equal portions every day. It would be very honest, but very stupid.
Most likely, they will conduct take-profits with the expectation of growth in rates. This means that as soon as the prices for XRP jump, a huge portion of coins will be dumped onto the market. A cup of cold water with clear results will be added to a kettle at boiling point.
The consequences of such actions for confidence in the coin are too obvious, and if the interest in XRP purchases falls, then the “virtual billionaires,” that is the top managers of Ripple, run the risk of going broke. Therefore, they are unlikely to act stupidly and rudely, and strong pressure on the rates will not be applied. By the way, many traders are sure that the regularly occurring forecasts on the inclusion of XRP in the listings of GDAX and Coinbase are generated by the Ripple fanatics themselves in order to maintain the rates of the coin.
The potential pluses and risks of XRP are by no means exhausted by this point. You can, for example, add that with each transaction, a portion of the tokens are burned; therefore, the more financial structures will use Ripple technology, the fewer coins will remain on the market. This is good for the growth of rates. But it is bad that the number of “burned” coins is small on the market, and the actual impact of these processes on rates may take several years.
So it is not surprising that XRP is perhaps the most volatile cryptocurrency among the leaders by capitalization. Now you can make money on Ripple by playing on the news about its successful application in a particular large bank. This only works, however, in a growing or sluggish market, because XRP leads the fall on a declining market, despite any positive news.
Medium- and long-term investments in XRP look generally promising. In particular, because the main holders of these coins are the top managers of Ripple, who will personally be interested in maintaining high rates for this token in the next four and a half years.
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