THE value of Ripple’s XRP has surged following a co-ordinated buying spree by traders.
It follows a similar spike from rival cryptocurrency dogecoin, although this has since crashed.
But what is XRP and why should you be wary before buying?
Before investing in any cryptocurrency, you should be aware of all the risks involved.
Cryptocurrencies are highly volatile, which means your cash can go down as well as up.
This means you’ll need to be prepared to lose any cash you invest.
Investing in cryptocurrencies or stocks and shares is not a guaranteed way to make money.
5 risks of crypto investments
THE Financial Conduct Authority (FCA) has warned people about the risks of investing in cryptocurrencies.
- Consumer protection: Some investments advertising high returns based on cryptoassets may not be subject to regulation beyond anti-money laundering requirements.
- Price volatility: Significant price volatility in cryptoassets, combined with the inherent difficulties of valuing cryptoassets reliably, places consumers at a high risk of losses.
- Product complexity: The complexity of some products and services relating to cryptoassets can make it hard for consumers to understand the risks. There is no guarantee that cryptoassets can be converted back into cash. Converting a cryptoasset back to cash depends on demand and supply existing in the market.
- Charges and fees: Consumers should consider the impact of fees and charges on their investment which may be more than those for regulated investment products.
- Marketing materials: Firms may overstate the returns of products or understate the risks involved.
What is XRP?
XRP is a digital currency created by American payment solutions firm Ripple Inc in 2012.
The key difference between the two is that XRP is a coin, while Ripple is the company behind it.
XRP is used to transfer money over the Ripple network, either between individuals or banks.
For example, if you need to send euros to someone who uses dollars, the Ripple network would convert this into XRP.
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At the time of writing, one XRP coin is worth around $0.66, according to currency tracker Coin Desk.
This is way off its all-time high of $3.29, which it hit on January 4, 2018.
One of the main differences between XRP and Bitcoin is that a set number of XRP coins have been produced, while new Bitcoin can be created.
In total, Ripple has created around 100 billion XRP coins, although not all of these are in circulation.
It’s thought up to one billion XRP coins are released each month, while Ripple owns a backlog of 55 billion coins in case of market volatility.
Another difference is that Bitcoin transaction confirmations can take minutes, while XRP transactions take seconds.
Why is the price of XRP going up?
XRP is currently up around 33% over the last 24 hours and is worth $0.66.
The price was likely pushed higher after traders called for investors to “pump and dump” the digital tokens via Telegram, according to CoinDesk.
It appears to be an attempt to mirror the recent share surge in heavily shorted companies like GameStop and Dodgecoin.
In the past few days, shares in GameStop have soared over 300% to $325 after targeted the games retailer.
In simple terms, “short selling” is when professional investors borrow shares of stock to sell, and then buy them back at a lower price.
Essentially, when investors are doing this they are betting that the stocks will drop in value so they can pocket the profit when they hand them back to the company they borrowed them from.
They rely on the company failing, making it a risky way of raising cash – any positive news could see shares rise and cause them to make a loss.
Firms offering other cryptoassets must now be registered with the FCA , and anyone who does invest in cryptocurrencies should check before investing.
It comes as Brits have been banned from buying “harmful” types of cryptocurrency investment in the UK.
How risky is Dogecoin? The dangers of buying cryptocurrency on apps like Robinhood.