The fear is palpable. As the cryptocurrency market cap lost over $250 billion in value within the last 24 hours, the masses have been left wondering what went wrong. What triggered this watershed moment? Has the cypto bubble popped? What does this market activity mean in regards to the price and long term viability of Ripple & XRP? Today I’ll cover these topics.
Price Behavior within the Cryptocurrency Market
Within the last year there have been more than a few occasions in which the cryptocurrency market cap as a whole dipped anywhere from 30% to 50%. Go to the Live Coin Watch website (link below) and you can easily spot with your own two eyes the extreme volatility of the market. After each extreme dip, the market only came back stronger.
Why is the market crashing to this degree today? The market cap for all cryptocurrencies rose in true meteoric fashion; to heights never before seen in a span of roughly two months. Consider the fact that in early November the market cap for all coins was about $200 billion, and as recently as one week ago it was hovering around $830 billion. That’s astonishing growth, and it’s the biggest increase we’ve ever seen in terms of dollars. In the past when we’ve seen similar percentage increases in total market cap over such a short period of time it’s been followed by sharp, temporary declines. What is happening today, in percentage terms, is no different.
An Economic Bubble
The Nasdaq Stock Market exchange website defines an economic bubble as follows:
A market phenomenon characterized by surges in asset prices to levels significantly above the fundamental value of that asset. Bubbles are often hard to detect in real time because there is disagreement over the fundamental value of the asset.
I do believe that the crypto space is operating within an economic bubble. A veritable cornucopia of money has been invested in so many different coins, seemingly in a state of euphoria. To date, most initial coin offerings have resulted in projects being funded in the tens of millions, with many soon attaining valuation in the billions. This parallels perfectly with the dotcom bubble. “Your project has something to do with the internet? Okay, here is money.” It’s absurd, and that is what we’re seeing today with cryptocurrencies.
That being said, blockchain technology is truly revolutionary and it is here to stay, just as the internet didn’t stop existing after the dotcom bubble popped. There are many legitimate projects in the crypto space, and such projects should be applauded.
If we can all be adult enough to acknowledge there is a crypto bubble, the question must be posed: When will the crypto bubble pop? If only Nostradamus were alive today to inform us. The truth is that no one knows the answer to this, but we can look at past examples to help us figure out how things might unfold.
Consider that the dotcom bubble peaked at $3 trillion dollars. That particular bubble was largely led by the United States stock market. In stark contrast, the market cap of all cryptocurrencies peaked about a week ago around just $830 billion as I previously stated. That is a far cry from the bubble popping territory that led to the dotcom bust. It’s also important to note the cryptocurrency movement is truly global, whereas the dotcom bubble was dominated primarily by western civilization. Given that there are substantially more participants in this bubble compared to the dotcom bubble, how could it possibly be that the crypto bubble pops before reaching a minimum of a $3 trillion market cap? In my mind it can’t. The market can crash like it did today, but not pop. I suspect time will show that the sharp declines we’ve seen today will rebound, and I don’t believe that this will be the last time we see such extreme volatility in the market.
Ripple & XRP Fundamentals
The most important thing you should take away from this blog entry is that the fundamentals of Ripple & XRP have not changed, despite the market crash today. In my last blog, I noted that the vast majority of funds in the XRP market cap have come from speculative investors, not financial institutions. Because of this fact the price of XRP is subject to extreme volatility which is true for all cryptocurrencies.
This will not always be the case. As financial institutions adopt XRP over time, the price of XRP will stabilize substantially. Why? It’s quite simple really. In the future, the majority of XRP will be held thanks to its real world utility. Banks and other financial institutions will use it as a source of on-tap liquidity for the settlement of payments. They will literally be using it to save money, so once XRP reaches critical mass there would be no incentive for financial institutions to sell it. Doing so would dramatically increase their expense in regards to cross-border payments. If you look long term it’s clear that holding XRP will be the most sound and stable investment in the entire cryptocurrency marketplace. You’ll be able to thank banks and the like for that, and you should.
Financial institutions and other entities that are interested in adopting xRapid (Ripple’s platform that utilizes XRP) will be just as interested in it tomorrow as they were yesterday. Nothing has changed on that front. Irrespective of the market crash today, I think it makes a lot of sense to sleep easy holding XRP. No doubt many savvy investors are taking advantage of the outrageous dip in the price of XRP today to increase their holdings of the coin.
Large Payments of XRP
Twitter user @XRPL_Monitor tracks and tweets all payments on the XRP ledger that are at least 5 million XRP. Over the last several hours, while crypto investors at large were collectively freaking out and in many cases selling their positions, here are just a few XRP transactions that occurred:
- Payment amount: 5,000,000 XRP, receiver balance 475,504,156 XRP
- Payment amount: 10,000,000 XRP, receiver balance 10,325,080 XRP
- Payment amount: 9,232,453 XRP, receiver balance 41,961,347 XRP
- Payment amount 7,294,420 XRP, receiver balance 32,864,329 XRP
- Payment amount 50,000,000 XRP, receiver balance 50,000,020 XRP
- Payment amount 15,292,726 XRP, receiver balance 27,016,813 XRP
Even more mind blowing, yesterday morning there was a payment of 890,335,048 XRP. What does this mean? Either there are a lot of millionaires and billionaires moving very high volumes of XRP around for the fun of it, or more likely, this is evidence of financial institutions purchasing and/or testing transactions of XRP. They’re doing this despitetoday’s crash. That should tell you something.
The price volatility of today has done nothing to shake my confidence in XRP and the mission of Ripple. Once xRapid is adopted by financial institutions on a large scale, they will not regress to a pre-XRP world, bubble pop or not.
DISCLAIMER: I am not a financial adviser. None of what has been written here should be considered financial advice; it is not. Do your own research before investing in any digital asset, and understand that investing in any cryptocurrency is inherently risky. You need to be prepared to lose your entire investment.