First Mover: XRP Just Isn’t Exciting Crypto Traders This Year

XRP, the fourth-biggest digital asset by market value, has been left out of 2020’s rally in cryptocurrencies, marking the second straight year of underperformance compared with its larger and more popular rivals, bitcoin and ether. 

The token is down 2% in 2020, while bitcoin is up 30% and ether, the native token from the Ethereum blockchain, has gained 76%. 

You’re reading First Mover, CoinDesk’s daily markets newsletter. Assembled by the CoinDesk Markets Team, First Mover starts your day with the most up-to-date sentiment around crypto markets, which of course never close, putting in context every wild swing in bitcoin and more. We follow the money so you don’t have to. You can subscribe here.

Cryptocurrency analysts and investors say XRP is likely underperforming this year because of regulatory pressure, slow growth as a payments solution and a lack of classic proof-of-work mining that generates fresh supply for the trading market. Such negatives have outweighed bullish factors that include a reduced pace of sales by the XRP software developer Ripple and signs of progress in a partnership with the payments transmitter MoneyGram (NASDAQ: MGI).  

“Even throughout this most recent bull crypto market run, there has rarely ever been anyone discussing XRP,” said Jack Tan, managing partner at Taiwan-based trading firm Kronos Research, told CoinDesk in a Telegram chat. 

XRP’s lagging returns follow an abysmal 2019, when the price fell 45% while bitcoin more than doubled. The token’s share of the overall digital-asset market capitalization has tumbled to 3%, from 12% early last year, according to metrics compiled by TradingView.

Mike Novogratz, whose firm Galaxy Digital owns a $29 million stake in XRP software developer Ripple, according to a Q1 2020 filing, said in January at a conference he thought XRP would “underperform immensely again” this year. He wasn’t wrong.

“We can’t control, nor do we focus on, the price of XRP day to day,” a Ripple spokesperson told CoinDesk in an email. “What Ripple is thinking about is the utility of XRP, and building solutions that solve real problems with global payments.”

XRP has been one of the crypto industry’s most popular assets since 2012. That year, as an alternative to bitcoin, the founders of what would become San Francisco-based Ripple gifted the company 80 billion XRP out of a total 100 billion created. 

The leading software company working on XRP, Ripple is a startup with over 530 employees, according to LinkedIn, and has raised over $286 million in venture capital from firms including Galaxy. Major product offerings from the company include RippleNet and On-Demand Liquidity (ODL), which are used to facilitate fast and cheap payments. 

XRP is notable for an often vocal and devoted community of backers, who sometimes refer to themselves as the XRP Army and support both the cryptocurrency and Ripple. There are also investment firms backing the cryptocurrency. 

“XRP is a perfect currency for what we do,” Michael Arrington, the founder of TechCrunch who now runs Arrington XRP Capital, one of the largest XRP investment funds, said in a phone interview. 

XRP’s properties of being fast and cheap – Arrington said he’s been able to move millions of dollars in the digital asset for as little as $0.45 – is one major reason why the fund likes its future potential.

“Right now we think XRP is dramatically undervalued,” he said. “All else being equal, we’re buyers at these prices. Maybe not leverage buyers, but we think it’s undervalued.”

Just last week, former Commodity Futures Trading Commission Chairman Chris Giancarlo said XRP deserved to be considered a cryptocurrency, not a security. Giancarlo is now a senior partner at the law firm Willkie Farr & Gallagher, where Ripple is a client.  

The question of whether XRP might be declared a security has haunted the asset because a declaration to that effect by the Securities and Exchange Commission would likely subject the token and its ecosystem to stricter regulations and potentially enforcement actions. Multiple lawsuits, one filed as recently as May, allege XRP should be a security. 

XRP’s price didn’t really budge in response to Giancarlo’s comments, possibly an indication traders are still waiting to hear from the SEC on the matter.

Another overhang is sales of tokens into the market: Ripple Labs does sell XRP to raise cash, although according to a first-quarter market report published by the company its sales of the tokens dropped to $1.75 million during the first three months of the year, down 86% from fourth-quarter levels. 

One of the biggest users of XRP is the payments transmitter MoneyGram, which received a $50 million equity investment from Ripple Labs last year. Upon completion of the investment in November, MoneyGram announced 10% of the company’s Mexican peso foreign exchange liquidity was already using Ripple’s ODL product to move money.

In February, Ripple Labs executive Ashseeh Birla provided an update on MoneyGram’s progress using its technology:

In the first quarter of 2020, MoneyGram reported it was able to reduce its operating expenses with a $12.1 million “benefit” derived from “Ripple market development fees.” However, there’s no further information about the growth of ODL within the company’s business lines other than that the partnership, valid through July 2023, is expected to continue to reduce expenses. 

Ripple Labs has formed relationships with hundreds of partners, including Bank of America, which has reportedly piloted some of its technology.

But banks might be worried about holding the tokens for fear of having to report any gains or losses to shareholders or supervisors, Haohan Xu, CEO of cryptocurrency liquidity provider Apifiny, wrote in an email message.

“This is especially given the different regulations across the globe, and being exposed to the volatility risk when holding XRP,” Xu said. 

So can demand for XRP be driven by usage or expected usage of its network for payments? How will XRP’s regulatory issues conclude? Does selling pressure from a lack of proof-of-work mining create some concern among traders? 

“XRP is an interesting crypto asset because whilst the fundamentals seem to indicate growth and greater adoption, the price action is showing the opposite,” Simon Peters, a cryptocurrency analyst at multi-asset brokerage eToro, wrote in an email to CoinDesk. 

BTC: Price: $9,432 (BPI) | 24-Hr High: $9,441 | 24-Hr Low: $9,273

Trend: While bitcoin is flashing green at press time, it is still trading within the narrow range of $9,000–$10,000 it’s been largely stuck in for over a month. 

The leading cryptocurrency by market value is changing hands near $9,440, representing a 1.5% gain on the day, according to CoinDesk’s Bitcoin Price Index. 

Prices are rangebound for the 11th straight day amid mixed signals on the technical charts. On the bullish side, the three-day 50- and 100-candle moving averages (MA) have produced a bullish crossover. A similar cross accelerated the uptrend in June 2019 and marked the beginning of a multi-year bull run in October 2015.

However, the three-day MACD histogram, an MA-based indicator used to identify trend strength and trend changes, has crossed below zero for the first time since early April, confirming a bearish reversal. The daily chart, too, is reporting conflicting signals with the MACD hovering below zero and the 50- and 200-day SMAs, signaling a bull market. 

With indicators lacking consensus on the potential direction of the next range breakout, traders will be waiting for a strong directional cue to emerge.

A UTC close above $10,000 would restore the bull run from the March low of $3,867 and open the doors for a $1,000 rally. On the way higher, the February high of $10,500 could offer resistance. 

Alternatively, a move below $9,000 will likely yield a sell-off to the 200-day SMA at $8,267.