XRP Price Analysis – Where is the traffic?

Ripple (XRP) is a payment protocol and network token designed to compete with the banking protocol SWIFT. The crypto asset is currently down 90% from the all time high established in January 2018. The XRP market cap stands at US$16.78 billion with US$1.21 billion in trade volume over the past 24 hours.

XRP was created in November 2012 by three founders; Arthur Britto, Chris Larsen, and Jed McCaleb, in collaboration with Ryan Fugger who began working on a payments protocol in 2004 called RipplePay. The project, which was closed source at that time, was incorporated under a new name, NewCoin, in September 2012. NewCoin rebranded to OpenCoin in October 2012, and then rebranded again to Ripple Labs in September 2013.

McCaleb resigned in May 2013, officially leaving the project in July 2013, and went on to create Stellar (XLM) in July 2014. McCaleb received a reported 5.3 billion XRP at the time of leaving Ripple, which he can sell restricted amounts of, based on a 2016 settlement which set yearly limits. McCaleb previously founded the MT GOX exchange in 2010, which was sold to Mark Karpeles in March 2011.

Since 2015, Brad Garlinghouse has served as the Ripple Labs CEO, with David Schwartz serving as CTO since July 2018. Schwartz joined Ripple Labs in 2011 as chief cryptographer. In January, Stuart Alderoty, who had previously worked at CIT bank, HSBC, and American Express, joined Ripple as general counsel. In February, Cory Johnson, previously Chief Market Strategist, was removed from the Ripple website, with Ripple stating that "due to changes in market conditions, we’ve chosen to eliminate the role."

Initially, 100 billion XRP were minted by the founders, with 80% of that supply held by the currently branded Ripple Labs, which is also known as “Ripple.” In May 2015, the U.S. Treasury’s Financial Crimes Enforcement Network (FinCEN) determined that Ripple Labs was “administrator” of the XRP tokens and levied the company with a fine of US$700,000 for failing to register as a money service business.

The gorilla in the room continues to be whether or not XRP represents an unregistered security. Ripple initially created, escrows, owns a majority of, and continues to control the majority flow of XRP tokens. Ripple argues that the network is sufficiently decentralized because the XRP token does not represent shares of Ripple, the company, and the XRP network would continue to exist if Ripple Labs did not. Several pending court cases, as well as any comments from the U.S. Securities and Exchange Commission (SEC), will clear any regulatory uncertainty surrounding the asset.

In December 2017, Ripple announced a programmatic escrow system for the remaining 55 billion XRP held by the company at that time. Each month, one billion XRP are unlocked from escrow and offered for sale. Any unsold XRP are then placed back in escrow at the end of the month. Ripple’s Q1 2019 report revealed 0.7 billion of the three billion XRP released from escrow over the quarter had been “used in a variety of ways to help support the XRP ecosystem,” up from 0.6 billion in the previous quarter.

Source: https://ripple.com/insights/q1-2019-xrp-markets-report/

Since 2012, according to ripple.com, “Ripple has methodically sold XRP and used it to incentivize market maker activity to increase XRP liquidity and strengthen the overall health of XRP markets.” Currently, the top 100 largest XRP accounts, excluding 51.6 billion XRP currently in held escrow, hold 77.69% of the total circulating supply. Ripple holds a further 6.67 billion XRP, leaving 42.11 billion XRP in circulation.

Source: https://ripple.com/xrp/market-performance/

For consensus, the XRP network uses The Ripple Protocol Consensus Algorithm, which aggregates collectively-trusted subnetworks of nodes and validators. There are currently 1025 public nodes with only 39% running the most recent software, version 1.2.4. The network also has 172 active validators, 63% of which have an anonymous domain, with non-Ripple validators accounting for 76% of the total. As of November 2018, a Ripple server required ~12GB of data storage per day and 8.4TB to store the full XRP ledger. However, a full node is not required to participate in the network and nodes can prune the ledger to free disk space.

Ripple offers a suite of tools for enterprise and banking solutions, collectively known as RippleNet, including; xCurrent, xRapid, and xVia. xCurrent processes global bank to bank payments for customers and is analogous to SWIFT. xCurrent version 4.0 xRapid, which went live in October 2018, sources on-demand liquidity through buying and selling XRP. xVia can be used to send unidirectional payments. Of the three tools, only xRapid requires the use of the XRP token.

In February, Mastercard and Barclays announced investments in SendFriend, a company using xRapid for remittances, primarily between the Philippines and the United States. In March, Spain’s Santander bank announced an expansion of the One Pay FX app, which uses xCurrent, with the creation of Pago FX for non-Santander customers. In April, Japanese bank Resona announced the discontinuation of remittance services through Money Tap, an app which also uses xCurrent.

Ripple also has two other monetary arms to foster the growth of the ecosystem, a venture capital arm and a university blockchain research initiative (UBRI). The venture capital arm, Xpring, invests in, incubates, acquires, and provides grants to companies and projects run by proven entrepreneurs. The research initiative has US$50 million in funding reserved for grassroots research and development related to XRP.

In April, 11 universities joined the UBRI, including; Carnegie Mellon University, Cornell University, Duke University, Georgetown University, University of Kansas, University of Michigan, Morgan State University, National University of Singapore, Northeastern University, University of São Paulo, and Institute for Fintech Research, Tsinghua University.

Additionally, Rippleworks, a non-profit focused on funding social ventures, was created in 2015 by Chris Larsen and Doug Galen. Rippleworks has paired startups and technology experts with 80 different social ventures. Earlier this year, Larsen and his wife donated US$25 million in XRP tokens to San Francisco State University.

In February, Xpring announced funding for Wietse Wind’s XRPL Labs, a company formed in October 2018 by Wind, Tristan van de Kamp, and Ali Mohammadlo. Wind had previously developed the XRP tip bot, released in December 2017. Upcoming XRPL projects will include a signing app, cold storage, and a decentralized exchange user interface. Earlier this year, XRPL also announced a bounty to bring an XRP payment plugin to WooCommerce’s Online Stores.

In March, Xpring partnered with Forte to form a US$100 million fund supporting game developers. Forte is a blockchain-based platform technology for the games industry, whose backers include a16z crypto, Andreessen Horowitz, Battery Ventures, Canaan Partners, Coinbase Ventures, 1confirmation, and others. In-game or in-app transactions and purchases are becoming commonplace in video games with the popular game Fortnite earning well over US$1 billion in revenue last year. Earlier this month, Xpring also participated in Agoric’s US$4 million funding round, a startup aiming to improve smart contract language.

The external XRP protocol ecosystem includes Interledger, Coil, and Codius, all of which are related in terms of functions and development teams. The Interledger Protocol (ILP) is capable of sending payments across different distributed and decentralized ledgers, and moves funds via intermediaries. Coil enables subscription-based donations for content monetization on the internet, without advertising or selling user data, and pays sites in real-time through a Web Monetization API. A similar micropayment system for content monetization is used by the Brave browser. Codius is a smart contract and smart program platform allowing for interoperability between blockchains.

In November 2018, the Bill & Melinda Gates Foundation announced plans to use ILP and Coil, in conjunction with Mojaloop, to bring payments to the under and unbanked. Earlier this month, Coil.com opened a public beta for its blogging platform, allowing writers to earn XRP for posts on Coil.

On the network side, transactions per day declined throughout most of 2018, as reported by Ripple, and have been ranging between 400,000 and 800,000 since the beginning of the year. However, neither coinmetrics.io nor bitinforcharts.com agrees with this data. Most of these transactions are generated by the OfferCreate function, a currency exchange facility. The average transaction fee to send XRP, which correlates with network traffic, has been minimal when compared to other coins, and is currently around US$0.00165 (not shown).

Source: https://xrpcharts.ripple.com/#/metrics

Daily active addresses (DAA) have decreased substantially since January 2018 (line, chart below) but have recently increased to nearly 15,000, above the previous range of between 4,000-9,000. Historically, DAA at this level has been short lived, only for a brief period between December 2017 and late January 2018. A large uptick in DAA should be seen as a bullish indicator for price, as it suggests increasing demand for the asset. The largest increases in DAA have come in mid and late 2017, corresponding to large increases in price.

The average transaction value (fill, chart below) on the network is also on a slight increasing trend over the past month, now just above US$700. Due to monthly escrow transactions, these values are likely slightly higher than actual organic usage. As total transactions per day have declined, these larger escrow transactions have had a more significant impact on the average transaction value per day. Further, if the XRP token is used widely for remittances, which are typically less than US$200, the average transaction value should fall. This trend is similar for networks with large dapp activity, a high number of transactions with small average transaction values.

Source: coinmetrics.io

The 30-day Kalichkin network value to estimated on-chain daily transaction ratio (NVT) is currently at 57 and falling, below the historic norm at 100 or above (line, chart below). A rising NVT should be considered bearish for price as this suggests declining network utility. Escrow transactions or coin arbitrage will falsely skew NVT significantly lower. A sharp decline in NVT below 100 would suggest bullish price action, which is what happened in December and January 2018. Although NVT is difficult to compare between coins, which use different transaction types, the metric can be useful when comparing a networks relative utility over time. For example, XLM, which uses a similar network structure to XRP, has nearly always had a much higher NVT than XRP.

Source: coinmetrics.io

Turning to developer activity, the Ripple project has 75 GitHub repos with over 150 developers contributing a cumulative 1,100 commits over the past year. Rippled version 1.2.4 was released in mid April. Most of the XRP related commits occurred in the Ripple dev portal (top) while the rippled repo has seen very few commits over the past few months (bottom).

Most coins use the developer community of GitHub where files are saved in folders called "repositories," or "repos," and changes to these files are recorded with "commits," which save a record of what changes were made, when, and by who. Although commits represent quantity and not necessarily quality, a higher number of commits can signify higher dev activity and interest.

Source: https://github.com/ripple/ripple-dev-portal/graphs/contributors

Source: https://github.com/ripple/rippled/graphs/contributors

XRP exchange traded volume over the past 24 hours has been led by the Tether (USDT) and Bitcoin (BTC) pairs. Both KRW and JPY volume hold a significantly higher percentage of volume than most other coins. Exchange volume for XRP pairs are led by Binance and Bitstamp.

XRP had a slurry of custody and exchange-related announcements towards the end of 2018 and through the beginning of 2019. In November, OKEx opened the XRP/BTC pair for margin trading and the Trezor Model T hardware wallet announced support for XRP storage. In December, XRP pairs were listed on Coinbene and KuCoin, while Binance listed several XRP base pairs. In January, OKEx added an XRP perpetual swap with 40x leverage and the exchange Bitrue also added several XRP base pairs. Bitcoinus, the Gibraltar Blockchain Exchange, BigOne, Biger, LykkeX, ProBit, and BankCEX also added XRP pairs in December and January. In late February, Coinbase listed XRP trading pairs and added XRP to the Coinbase wallet. Fidelity Digital Assets may also list XRP trading pairs later this year.

Aside from a brief period between December 2017 and February 2018, Google Trends for the term "Ripple" has mostly been pinned to the floor. The increase in searches likely signaled a large swath of new market participants at that time. A 2015 study found a strong correlation between the google trends data and bitcoin price, while a 2017 study concluded that when the U.S. Google "bitcoin" searches increase dramatically, bitcoin price drops.

Technical Analysis

In the past few weeks, XRP has begun to follow the rest of the crypto market and break out of the previous range. As consolidation completes and a new trend potentially begins, entries and exits can be found using exponential moving averages (EMAs), oscillators, Volume Profile (VPVR), Pitchforks (PFs), and the Ichimoku Cloud. Further background information on the technical analysis discussed below can be found here.

On the daily chart, the 50-day and 200-day EMAs have been bearishly crossed since May 21st. XRP is now sitting above both EMAs. A bullish Golden Cross may occur sometime this week, which is suggestive of further upside strength and a definitive trend reversal. There are no active volume or RSI divergences at this time.

The VPVR from 2017 (horizontal bars) shows that most of the trading volume has occurred near the US$0.32 level. The volume profile also shows relatively little volume above US$0.54. Since September last year, the asset had been bound by a triangular range XRP recently broke out of the triangle, suggesting an end to consolidation. However, a fall below the triangle support would suggests a target of US$0.24 for the foreseeable future.

Long/short open interest (top panel, chart below) on Bitfinex is currently 92% long, with long positions rising significantly since late January. A significant price movement downwards will result in an exaggerated move as the long positions will begin to unwind. This is known as a "long squeeze."

A potential bearish PF, with anchor points in December 2017 and April 2018, encapsulates the range of the current downtrend. Price will continually attempt to return to the median line (yellow) throughout the duration of the trend. The bearish PF will be invalidated once price moves above the highest resistance zone, currently at US$0.48. The lower bounds of support represent a buy zone whereas the upper bounds of the resistance represent a sell zone. The lower support diagonal also matches the 2017 triangular consolidation zone.

Turning to the Ichimoku Cloud, there are four key metrics; the current price in relation to the Cloud, the color of the Cloud (red for bearish, green for bullish), the Tenkan (T) and Kijun (K) cross, and the Lagging Span. Trades are typically opened when most of the signals flip from bearish to bullish, or vice versa.

The daily Cloud metrics are 100% bullish for the first time since January 2018: price is above Cloud, the Cloud is bullish, the TK cross is bullish, and the Lagging Span is above the Cloud and above price. In total, this represents the most bullish Cloud picture in over 470 days. Based on the Cloud ledge and psychological resistance, US$0.50 will likely act as the next upside pitstop.

Lastly, the daily XRP/BTC chart shows potential exhaustion of the strong bearish trend, with the potential for a mean reversion attempt towards 7,200 sats. Trend metrics, including EMAs and Cloud, all remain strongly bearish. VPVR shows strong support from the current level down to 3,000 sats, and little resistance to the upside until 7,200 sats. There is currently no RSI bullish divergence, but the RSI hit 13 on May 13th, the lowest level ever recorded for the pair. Any lower low in price would also likely result in a strong bullish divergence.

Conclusion

Fundamentals show a decreasing NVT and a slight uptick in daily active addresses, with virtually no increase in transactions per day. Average transaction values have also begun to creep up over the past few weeks. Together, this paints a bullish picture, likely brought about by the recent increase in volume. If XRP token demand was driven by remittances and micropayments, transactions per day would be relatively high or increasing, and average transaction values would likely be much smaller or declining. Additionally, transfers between exchanges and user wallets, as well as large monthly escrow transactions, will inflate average transaction values and cause declining pressure on NVT.

Although some banks have reported successful use of xCurrent, RippleNet as a whole has yet to convert a large degree of continuous, high volume, on-chain network traffic. Additionally, xRapid’s buying and immediate selling of the XRP token is not a net gain for token demand in and of itself. The most bullish price action in Ripple’s history has been strictly related to news announcements and not sustainable organic growth, as evidenced by the low number of transactions per day.

Technicals on the XRP/USD pair are the most bullish they have been in over a year. The litmus tests for a trend reversal include price position relative to both the 200EMA and the Cloud on the daily timeframe, as well as a bullish 50/200 EMA cross and a breach of the year long bearish pitchfork. Although the XRP/BTC pair remains in a strong bearish trend, a mean reversion attempt towards 7,200 sats is likely based on signs of bearish exhaustion. For many, regulatory clarity is still needed in regards to the possibility of the XRP token representing an unregistered securities offering by Ripple Labs. A definitive ruling should be highly impactful on price.