Ripple publishes the quarterly XRP Markets Report to voluntarily provide transparency and regular updates on the company’s views on the state of the XRP market, including quarterly programmatic and institutional sales updates, relevant XRP-related announcements such as Xpring and RippleNet partnerships and commentary on previous quarter market developments. As an XRP holder, Ripple believes proactive communication is part of being a responsible stakeholder. Moreover, Ripple urges others in the industry to follow its lead to build trust, foster open communication and raise the bar industry-wide.
Market Snapshot: Crypto as a Safe Haven Asset Class
Since the advent of bitcoin, digital assets are often referred to as safe haven assets, or assets that market participants can turn to during turmoil in the financial markets, due to their presumed lack of correlation to traditional markets. Born out of the 2008 financial crisis, digital assets put the safe haven label to the test. That was all about to change on March 12, 2020, or what some describe as “Black Thursday.”
In the days preceding Black Thursday, digital assets began the week holding firmly along with gold and trading as a safe haven asset, while equity markets were seeing the beginning of COVID panic. However, as the S&P dipped below 3,000 on Black Thursday, unprecedented volatility spread through digital asset markets. Bitcoin (BTC) saw its largest one day move ever, losing over 50% of its market value in a matter of hours—a decline accelerated by billions of USD worth of liquidations on leveraged derivative venues and lending platforms.
As digital asset holders rushed to transfer digital assets to either meet margin calls, sell out of their positions, or take advantage of price dislocations, the BTC and Ethereum (ETH) networks became overwhelmed and suffered performance issues. According to Coin Metrics, “median transaction fees measured in dollars for both Bitcoin and Ethereum shot up almost five-fold.” While the entire crypto market, including XRP, experienced volatility, the performance of the XRL Ledger (XRPL), such as transaction pricing and speed, remained stable making XRP the preferred digital asset for funds transfer.
Fast forward five weeks, and as of April 17, 2020, the S&P 500 is down 11% on the year, WTI Crude is down almost 70% YTD, Gold is up 10%, and total crypto market capitalization is up 7.3%. Given the recession and continued uncertainty about the extent of the long-term economic impact this global crisis will impose, we expect continued market volatility and a sustained test for crypto as to whether it performs as a ‘safe haven’ asset class.
Disciplined, Responsible Stakeholders: Continued Pause in XRP Programmatic Sales
As readers may recall, in Q2 2019, Ripple shifted to a more conservative volume benchmark for XRP sales, away from CoinMarketCap and to CryptoCompare Top Tier (CCTT) and significantly reduced XRP sales. In Q3 2019 and Q4 2019, Ripple further reduced XRP sales and paused programmatic sales. Ripple maintained this approach throughout the entirety of Q1 2020.
In Q1 2020, total XRP sales were $1.75 million (USD) vs. $13.08 million the previous quarter. In addition, Ripple continued the pause of programmatic sales, focusing solely on its over-the-counter (OTC) sales to build XRP utility and liquidity in strategic regions including EMEA and Asia. Total sales (OTC-only, given programmatic pause) ended the quarter at 0.6 bps of CCTT. This is compared to total sales in the previous quarter (OTC + programmatic) of 8bps of CCTT, representing a 99.3% drop QoQ.
|Sales Summary (dollars in millions)||Q4 2019||Q1 2020|
|Institutional direct sales (OTC)||13.08||1.75|
|Global XRP volume||Q4 2019||Q1 2020|
|ADV XRP (dollars in millions)||187.34||322.66|
|Total XRP volume (dollars in billions)||17.24||29.68|
|Total sales as % of total volume||0.08%*||0.006%*|
* Percentage is calculated by dividing actual Ripple dollar proceeds by total reported XRP volume in dollars.
Note: In Q4, effective Q1 2020, CCTT changed the methodology it uses to determine which exchanges it lists in the TopTier, which is reflected in the numbers above. CryptoCompare did not retroactively update its data for the change. Ripple continues to evaluate its benchmarks given challenges, such as fake volume, that continue to persist in the industry.
CCTT’s reported daily volume for XRP increased in Q1 2020 from Q4 2019. The average daily volume reported at $322.66 million in Q1 versus $187.34 million in Q4, and above Q3’s reported $198.10 average daily volume.
XRP’s volatility of daily returns over Q1 is 6.2%, representing an increase in volatility from Q4’s 3.1%. XRP’s volatility over the quarter was higher than that of BTC (5.8%), and lower than that of ETH (7.3%)
Correlations with XRP
After showing signs of decoupling from large cap digital assets, correlations of XRP with other large capitalization digital assets spiked towards 100% following Black Thursday’s Market Meltdown.
In Q1 2020, three billion XRP were again released out of escrow (one billion each month). In total across the quarter, 2.7 billion XRP were returned and subsequently put into new escrow contracts. Note: All figures are reported based on transactions executed during the quarter.
Monitoring Escrow Activity
Last quarter, Ripple re-shared details on escrow to provide clarity on its mechanics and timeline. To provide further transparency, Ripple created @XRP_EscrowBot. This Twitter bot monitors and posts the monthly escrow movements. Anyone on Twitter can follow this account to track escrow activity.
As a reminder, every month, the escrow mechanism releases a total of one billion XRP to Ripple. The portion of XRP leftover each month is placed into a new escrow to be released in the following months. For more information on Ripple’s escrow, please see here.
On-Demand Liquidity (ODL)
Customers continue to see the value of XRP through significant cost-savings by eliminating the need to pre-fund international accounts. From Q4 2019 to Q1 2020, RippleNet’s On-Demand Liquidity (ODL) service tripled in transaction volume, and the dollar value transacted increased by more than 294%.
Of note, Ripple and Azimo, a UK-based digital money transfer service, announced their partnership to use the digital asset XRP in cross-border payments. Azimo launched its service to send payments to the Philippines and, within a few months, ODL saved the company 30%-50% when arranging currency transfers between customers in the Philippines and those in the UK and Europe.
XRP Integrations and Liquidity Update
As mentioned in a recent Insights blog, liquidity is the key to exchanging any asset. The more liquid an asset is, the more efficiently it can be exchanged. Therefore, it goes without saying that XRP liquidity is the lifeblood of Ripple’s On-Demand Liquidity for cross-border payments.
In addition to being bolstered through new use cases for XRP outside of cross-border payments, liquidity is increased by the variety and diversity of exchange tradable instruments. In the case of XRP, Q1 saw the integration of XRP into a number of additional exchanges and liquidity instruments.
The open-source community of developers continues to build products and support innovation on the XRPL through improvements to the technology. Last quarter, Xpring launched new tools, services and documentation for developers including XRP Ledger Mainnet support in the Xpring SDK and support for Interledger Protocol (ILP) STREAM on Testnet in the xpring.io wallet.
In addition, Xpring partner Anchorage announced support for custody of XRP, enabling its growing roster of enterprise customers to securely store XRP for various use cases. The popular wallet BRD also announced support for XRP.
- The Monetary Authority of Singapore granted temporary relief to certain market participants from the newly adopted licensing requirements under the Payment Services Act. The relief will allow firms to operate until July 2020, after which time they must obtain a license.
- The Indian Supreme Court overruled a ban on cryptocurrency activities that was imposed by the Reserve Bank of India in April 2018. A few days later, the RBI announced its intent to return to the Supreme Court to challenge this ruling.
- The CFTC released interpretive guidance for when “actual delivery” occurs for retail crypto transactions involving leverage or margin. This guidance is another step taken by the CFTC to provide clarity to market participants regarding activity that falls within their jurisdiction.
- Amid the pandemic crisis, the U.S. Congress discussed the creation of a “digital dollar” and related accounts as a way to speed stimulus payments to households that need support.
- SEC Commissioner Hester Peirce proposed a 3-year safe harbor period for crypto token sales. The safe harbor proposal provides relief for issuers from being considered in offering illegal securities.
- Brazilian Central Bank announced an initiative to allow payments between retail customers and businesses to be processed within seconds. This initiative is part of the Central Bank’s overall initiative to improve open banking within Brazil.
- SWIFT’s messaging upgrade to ISO standards was delayed by one year, and is now set to finish by 2025.
- Worldline purchased Ingenico for $8.6 billion, continuing the consolidation trend of payment players. Ripple expects to see consolidation continue in 2020 as legacy players try to digitize and protect market share against fintechs.
- Facebook altered its plans for its Libra whitepaper due to regulatory pressure and political pushback. Unsurprisingly, Facebook’s Libra project shifted focus and will support both existing government-backed currencies and the Libra token.
- The number of crypto wallets containing one bitcoin (or more) continued to rise and hit an all-time high on March 11.
- Binance, one of the largest cryptocurrency-trading platforms, acquired CoinMarketCap.com for an undisclosed price and, in the face of criticism, affirmed their intent for the site to be a neutral provider of data.
- Binance and OKEx overtook BitMEX in the bitcoin futures market this past quarter as volume on crypto exchanges reached a record high in mid-March.