Ripple (XRP)–Ripple, the blockchain startup parent company that created the XRP cryptocurrency, has released somewhat disappointing figures for the second quarter of 2018. Ripple holds a vast amount of the total supply of XRP in an escrow account that will not be fully paid out for the next several years. Each month, 1 billion XRP is unlocked from escrow for the company’s use, mostly in the form of businesses looking to acquire XRP for liquidity or developmental purposes. At the end of the month, the unsold XRP is returned to escrow, and placed at the back-end of the total supply Ripple holds, thus extending the length of time until the max supply of XRP equals the total circulating supply on the market.
However, Q2 saw a sharp drop in Ripple initiated XRP sales compared to the first quarter of the year: sales were down 56%, dropping from $167.7 million worth of XRP sold in the first three months of the year to $73.53 million. More troubling is the decrease in market volume, which also saw a decline throughout 2018 and a steep fall from the end of 2017–albeit when Ripple, and crypto in general, was reaching a fever-pitch in market and institutional interest.
As apart of the $73.53 million XRP sold, the Ripple subsidiary XRP II saw sales increase from $16.6 million to $16.87 million worth of XRP; a modest increase but one that appears to be telling of institutional interest in the currency. XRP II represents the legal entity that was granted by the New York Bitlicense to allow Ripple to sell crypto to institutional investors. While sales for XRP saw a sharp decline in Q2 2018 compared to the first part of the year, the bump in XRP II sales is a positive sign for growth and increased demand from institutional or new partnership incentives. David Schwartz, who goes by the moniker Joel Katz on social media and is the newly minted CTO of Ripple, outlined the benefits for increased XRP II sales relative to the market,
1) Many of these deals are cases where Ripple believes that incentivizing partners is good for the ecosystem.
2) Compared to Ripple selling on the open market, these tend to create less immediate supply of XRP.
3) Ultimately, less XRP being in Ripple’s hands means less future supply. Since that future supply is, at least to some extent, priced in, reducing it should reduce some downward price pressure.
4) Institutional investors buy XRP because they think it’s going to be worth more in the future. Institutional sales build market confidence.
5) Many of these deals mean more money for Ripple, which Ripple uses to hire employees, sign up partners, do regulatory outreach, and so on. To date, none of that money has been used to pay dividends to investors. It has all been retained and/or used by Ripple. Ripple’s long-term goal is to maximize the value it gets from its XRP.
Just like Ripple selling XRP directly to investors, increased sales of XRP II represent an inflation of coins entering the market, albeit to a lesser extent than the ones dumped on exchanges. Typically, institutional investors purchasing XRP II are more interested in uses for the coin or long term asset appreciation, as opposed to trying to flip a few percentage gains on the market. In addition, as Schwartz outlined above, selling XRP II decreases the centralization of Ripple while providing the parent company with more funds–money used to further XRP adoption, brand appeal and Ripple’s extensive charitable efforts.
While falling XRP sales were a black mark on Q2 2018, Ripple was quick to point out that the customer base increased during that time-span. Ripple considers the previous three months as the best Q2 in company history (still up substantially from Q2 2017), with a growth in new customers and customer volume despite the slipping sales. Ripple cites the prolonged bear market for contributing to the drop in sales, saying the movement is consistent with the state of the depressed crypto markets, but is predicting a turn as the industry grows,
“The tight correlation is indicative of a market that is still in its infancy. Traders have yet to distinguish among the intrinsic values of the best known digital assets. As the industry matures and decides what it deems most useful and valuable, we should expect to see more separation.”