What affects the price of Ripple?
Looking at price movements and regulation against Ripple Labs technology, effects on price become clear.
The hot topic in cryptocurrency markets is what is driving the price of Ripple (XRP). Some market pundits say it is all speculative trade, others say financial regulation or a lack of it drives the price of XRP, and yet others say that the underlying technology is what moves the price of XRP.
Although it is hard to say that any one of these factors causes the movements in XRP, by looking at certain events surrounding all three of those factors, it is pretty certain that they all have a strong effect on the price of XRP.
This article analyses all three aspects: speculative trade, financial regulation and the underlying technology of Ripple, to make it easier to know what drives XRP.
Speculative trade accounts for huge movements in the price of XRP. According to market information released by CoinMarketCap, the top three Korean cryptocurrency exchanges accounted for over 50% of daily trade in XRP. It may seem strange that Korean exchanges have been mentioned first, but this is important.
US$200 million dollars was wiped off the cryptocurrency market on 8 January 2018 due to CoinMarketCap unexpectedly removing Korean exchanges from its pricing data, reinforcing the reality that we are indeed in the Information Age. CoinMarketCap did not actually do anything other than show lots of people that there was a dramatic drop in cryptocurrency prices without Korean trade.
The effect on global cryptocurrency prices has been enormous. On 4 January 2018 XRP hit an all-time high of US3.84 according to CoinMarketCap. On that same day, Bithumb, the largest South Korean cryptocurrency exchange, showed XRP trading at roughly US$4.47 indicating a nearly16.5% premium on South Korean exchanges.
That premium has pretty much disappeared. In the time since 4 January, the margin between XRP on South Korean exchanges and CoinMarketCap has withered to US$0.01, as at the time of writing. But not only that, the South Korean XRP trading price has shed over US$4. Bithumb shows a trading price of US$1.16 compared to CoinMarketCap showing XRP at US$1.15.
At present, speculative trade has the strongest effect on the price of XRP. This can be seen by the strong increases the Korean exchange markets have had on its price. That was until regulation became a barrier to entering the market.
Lack of financial regulation allowed a huge speculative run on South Korean exchanges. At an estimated one third of the South Korean population holding cryptocurrency, South Korea is widely held to be the most embracing nation of cryptocurrencies and blockchain technologies in the world.
Upsetting that, South Korean banks have begun a regulatory squeeze. It was announced in early January that traders and exchanges were at risk of having accounts frozen if they were not compliant with the country’s know-your-customer and anti-money laundering policies. That would mean that traders could face not being able to move national currencies into cryptocurrency trading accounts in South Korea.
Those changes stem the flow of people and money going into cryptocurrency markets. As hundreds of thousands of new trading accounts were being added to South Korean exchanges every day, this increase could be associated with the wild increase in cryptocurrency prices around the world. Evidence of this is shown by the pattern of increased regulation and a dip in trading volume.
Drops in trading volume are seeing huge XRP price falls. On 29 January XRP was at US$1.43 and had a 24-hour trading volume of US$1.53 billion. That number dropped to as low as US$826 million by the next day. On 31 January XRP had crashed to US$1.04 as sustained trading muscled it from going any lower showing the effective barriers to trading XRP on Korean exchanges has had a negative effect on XRP prices.
The laxed regulatory environment in South Korea, only in December of 2017, banned foreigners from having trading accounts in South Korean exchanges. Of course, this was not much use with anonymous trade not requiring that information. Accordingly, anonymous cryptocurrency trading accounts have been outlawed as at January of 2018.
Ripple Labs specialises in remittances, which means cross-border payments. Prior to Ripple Labs, the SWIFT system of international payments was virtually without a competitor. That system is being made redundant right now. RippleNet, the patent technologies underlying XRP, transfers money almost instantly, to any city on Earth, whether that be XRP or US dollars or any other currency.
Ripple Labs technology is world class, but XRP is not yet gaining the traction necessary to be a genuine form of currency. In 2017 Ripple announced some big contracts and some big testing partners, the US Federal Reserve and English Central Bank among them. Also, Ripple Labs and European banking clientele were involved in moving hundreds of millions of US dollars across borders.
RippleNet is also being marketed well in the largest remittances market on Earth in Singapore. The Monetary Authority of Singapore (MAS) revealed that Ripple Labs was one among a number of blockchain companies as the MAS conducted its blockchain experiment. Standard Chartered of Singapore and AXIS Bank of India have been using RippleNet to send money across borders. The trouble is that none of this is increasing the use of XRP.
At this stage, it is too risky for institutional banks to use XRP in cross-border payments. What this shows is that while the RippleNet technology is excellent, unless XRP can be used for cross-border payments the underlying technology does not drive the price of XRP. The examples above have all been transacting in currencies other than XRP. In the United States and any other country where eBay is used, that could soon change.
— mars75 (@_mars75) February 1, 2018
XRP’s use will increase because it might soon power eBay’s transactions. Finder reported on 1 February 2018 that eBay had announced it will offer Adyen as a payments provider. Adyen has other noteworthy clients like Uber, Netflix and Spotify.
Adyen has the capacity to integrate Ripple technology into its payments processing. If that were to happen, it would look as though XRP’s adoption in payments could increase in those circumstances.
What this means for the price of XRP
For XRP, exchange trading and financial regulation will have short-term impacts on price and the underlying technology is more likely to have long-term impacts on price. To the extent that speculative trading can affect XRP, financial regulation acts to restrict that. This is a simple outcome of supply and demand.
The demand to trade XRP on Korean exchanges was because barriers to the market were low. As barriers to the market have been introduced and strengthened, the volume of XRP trade has dropped and also its price.
Effectively, what this means is that control of XRP price falls more closely with Ripple Labs. There is evidence that suggests 91.46 Billion XRP are held in the top 59 wallets and all of them hold 100 million XRP or more.
For Ripple Labs, it makes good business sense to have a stable XRP price which allows institutional banking clients use XRP to make cross-border payments. Even if that does not happen, the use of RippleNet seems to be increasing with Adyen being a partner. But at this stage it is not possible to say that will drive the price of XRP.
Even if the price of XRP stabilises, it cannot be known whether or not XRP will be used by its clientele. If there was one thing to share, effective regulation has curbed speculative trading and lowered the price of XRP.