Ripple is excited to publish the first of our quarterly XRP Markets Reports. In order to continually improve the health of XRP markets globally, we will share regular updates on the state of the market including quarterly sales, commentary on previous quarter price movement and announcements of new third-party wallets, exchanges, validators and third party liquidity providers.
In Q4 2016 market participants purchased $4.6m of XRP directly from XRP II*, Ripple’s registered and licensed money service businesses (MSB). There are a few important things to note about these purchases. First, they include sales restrictions that help mitigate the risk of market instability due to large subsequent sales. Second, these purchases are significant because they introduce important new partners to the XRP ecosystem. Lastly, institutional investment is a key differentiator for XRP and is indicative of its broader capital market potential.
While it’s difficult to pinpoint the exact drivers of price action, it’s relatively clear that the U.S. presidential elections played a significant role in the appreciation of digital assets in Q4 2016. Additionally, monetary developments in India, as well as increased demand from China on the back of their new capital controls, also continued to drive demand for digital assets during the quarter.
As the year drew to a close, what had been a Bitcoin rally spilled over into adjacent digital assets such as Litecoin and Monero, both of which saw sizeable increases in price and volume in the second half of December. Interestingly, XRP underperformed during that period, only depreciating slightly by 2.04%. This underperformance was likely due to limited listings on digital asset exchanges, lack of access to XRP in China, as well as XRP’s reputation as a more institutional asset, and not a vehicle for speculation.
In Q4 2016 XRP saw a sizeable quarter-over-quarter average daily volume growth of 121%, a positive sign of overall market health. Though much of this can be attributed to general market activity, a significant portion of the growth was due to the initial roll-out of our market making incentives first mentioned in February 2016. That program helped serve as the impetus for the digital asset exchange rebates and incentives which will be rolled out earlier this month and plan to offer for each subsequent XRP listing in 2017. The XRP incentive program is designed to accelerate the use of XRP as a universal bridge currency by creating deep and liquid markets at the outset of being listed on digital exchanges. The program is funded by Ripple and will be operationally managed by exchanges for their liquidity providers. We believe this is a key differentiator for XRP and will improve liquidity and tighten spreads.
As part of a continued effort to expand the XRP ecosystem, we announced that one of the world’s leading digital asset exchanges, Bitstamp, listed XRP/EUR and XRP/USD trading pairs on its exchange. Bitstamp also became the first partner exchange in the above mentioned XRP incentive program. High regulatory standards and commitment to excellence make this exchange precisely the kind of partner XRP requires, and we are very excited to have them join the XRP community.
Also, in Q1 2017 we plan to offer qualified market participants the ability to borrow XRP. This will facilitate enhanced participation in XRP markets and will lead to deeper and more stable markets. It’s a crucial step in encouraging capital markets adoption of XRP which will ensure it becomes the institutional standard bearer for international value transfer.
If you are an exchange, liquidity provider, or financial institution and are interested in off-ledger incentives or borrowing XRP please contact us.
*XRP II is licensed to engage in Virtual Currency Business Activity by the New York State Department of Financial Services.