XRP Price Analysis – Bearish momentum on the horizon

Ripple (XRP) is a network token that is currently third on the Brave New Coin market cap table, having recently being surpassed by Ethereum. The XRP market cap stands at US$12.4 billion, as calculated from a 41.2 billion free float supply. There has been a total of US$309.55 million in trade volume over the past 24 hours. Over the past month, XRP has underperformed most large and medium cap assets (chart below).

Source: Coin360.io

XRP was created on November 2012 by three founders; Arthur Britto, Chris Larsen, and Jed McCaleb, in collaboration with Ryan Fugger who had begun working on a payments protocol in 2004 called RipplePay. The project was incorporated in September 2012 under the name NewCoin, and the source code was closed. NewCoin rebranded to OpenCoin in October 2012, and then the name changed 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 previously founded the Mt. Gox exchange in 2010, which was sold to Mark Karpeles in March 2011.

Brad Garlinghouse has been the Ripple Labs CEO from 2015, with David Schwartz serving as CTO from July 2018. Schwartz joined Ripple Labs in 2011 as chief cryptographer. Last month, Stuart Alderoty, who had previously worked at CIT bank, HSBC, and American Express, joined Ripple as general counsel. Earlier this week, 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 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.

Currently, the top 100 largest XRP accounts, excluding escrowed XRP, hold 78.69% of the total circulating supply. Ripple holds 6.48 billion XRP with 41.2 billion XRP circulating and 52.3 XRP billion currently in escrow. 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 to any XRP customer. Any unsold XRP is then placed back in escrow at the end of the month. Ripple’s Q4 quarterly report revealed that 0.6 billion of the three billion XRP released from escrow over the quarter had been purchased on the open market, up from 0.4 billion sold in the previous quarter.

The gorilla in the room continues to be whether or not XRP represents an unregistered security. Ripple has created, escrowed, owns a majority of, and continues to control the flow of XRP tokens. Ripple argues that the network is 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 clarity from the U.S. Securities and Exchange Commission, would clear any regulatory uncertainty surrounding the asset.

Unlike most cryptocurrencies, XRP does not use a Proof of Work or Proof of Stake consensus algorithm but instead uses The Ripple Protocol Consensus Algorithm, which uses collectively-trusted subnetworks of nodes and validators. There are currently 1068 public nodes with only 11% of nodes running the most recent version, 1.2.0. The network also has 118 validators, most of which have an anonymous domain, with non-Ripple validators accounting for 73% of all validators. As of November 2018, a Ripple server required ~12GB of data storage per day and 8.4TB to store the full history of the 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. xRapid, which went live on October 1st, 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. Earlier this week, Mastercard and Barclays announced investments in SendFriend, a company using xRapid for remittances, primarily between the Philippines and United States.

Ripple also has two other monetary arms to foster the growth of the ecosystem, a venture capital arm and a university research initiative. 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. This week, Xpring announced funding 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.

The external XRP 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.

On the network side, transactions per day declined throughout most of 2018, as reported by Ripple, but have been increasing recently. Neither coinmetrics.io nor bitinforcharts.com agrees with this data, however. 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$0.004 (not shown).

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

Daily active addresses (DAA) have also decreased substantially since January 2018 (line, chart below) although data between April and July 2018 is absent. DAA remain above most of 2017 levels. 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 come in mid and late 2017.

Average transaction value (fill, chart below) has declined substantially since December. However, due to large transactions sizes sent to and from escrow wallets, these values are 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.

Source: coinmetrics.io

The 30-day Kalichkin network value to estimated on-chain daily transaction ratio (NVT) has begun to rise again after sitting at a local low. Transaction data between April and July is absent, resulting in a falsely elevated NVT for that time period. A falling NVT should be considered bullish for price. However, again, escrow transactions or coin arbitrage will falsely skew NVT significantly lower.

Although NVT is difficult to compare between coins, which use different transactions types, it can be useful when comparing a networks relative utility over time. For example, XLM, which uses a similar network structure to XRP, has a much higher NVT. XRP’s current NVT sits at a historically low level, with periods below 20 representing record prices.

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 1.1.2 was released on December 16th and version 1.2.0 was released earlier this week. 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), Bitcoin (BTC), and Ethereum (ETH) pairs. The majority of trading has occurred on ZB.com, HitBTC, Binance, and OKEx. Both KRW and JPY volume hold a significantly higher percentage of volume than most other coins.

XRP had a slurry of custody and exchange-related announcements towards the end of 2018 and 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. Coinbase and Fidelity Digital Assets may both also list XRP pairs this year.

Google Trends for the term "Ripple" remain down sharply over the course of the year, with a small spike in September. A slow rise and large spike in searches for "Ripple" preceded the bull run in Q4 2017, likely signaling 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

To determine entries and exits throughout a trend exponential moving averages (EMAs), Volume Profile (VPVR), Pitchforks (PFs), and the Ichimoku Cloud can be used. Further background information on the technical analysis discussed below can be found here.

XRP/USD has trended downward since the beginning of the year, despite consolidating throughout most of December.

On the daily chart, the 50/200EMA has continued to hold a bearish cross since May 21st. Price is currently far below the 200EMA and sitting just below the 50EMA. A break of the 50EMA resistance would suggest a push toward the 200EMA at US$0.40. A bullish Golden Cross is not likely to occur for several months, but it would suggest further upside strength and a definitive trend reversal. There are no active volume or RSI divergences at this time.

The VPVR from 2017 to date shows that most of the volume has occurred in the US$0.14-US$0.25 range. The volume profile also shows relatively little volume above US$0.54. Since September last year, price has been held within a triangular range. Falling below the triangle support suggests a minimal target of US$0.24. Long/short open interest (top panel, chart below) on Bitfinex is currently net long, with longs rising significantly over the past month.

A potential bearish PF, with anchor points in December and April, encapsulates the range of the current downtrend. The lower bounds of support represent a buy zone whereas the upper bounds of the resistance represent a sell zone. Price will continually attempt to return to the median line (yellow) throughout the duration of the trend. The trend will remain bearish until price rises above the entire PF, currently above US$0.554.

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.

On the daily chart, Cloud metrics are bearish; price is below the Cloud, the Cloud is bearish, the TK cross is bearish, and the Lagging Span is below the Cloud and below price. A traditional long entry triggers when price is once again above the Cloud, which only happened once in mid-November 2018. The flat kumo at US$0.422 and US$0.51 represent a magnet for price if the current lows are not breached.

The XRP/BTC pair on the daily chart shows a neutral trend. Price is in the Cloud sitting just above the 200EMA. A Kumo breakout North with a bullish TK cross should be seen as a strong long entry signal. However, an approaching bearish Kumo breakout with a 50/200EMA Death Cross suggest bearish momentum on the horizon. VPVR shows strong support from the 70,000-90,000 sat zone suggesting price is unlikely to fall lower without significant bearish strength.

Conclusion

Fundamentals suggest low network use and relatively high average transaction values with nearly zero fees. It remains difficult or impossible to determine if this represents institutional usage or purely speculation, with transfers between exchanges and user wallets. RippleNet has yet to convert a large degree of continuous high volume on-chain network traffic. xRapid’s buying and immediate selling of the XRP token is not a net gain for demand in and of itself. Most bullish price action over the past few months has been strictly related to news announcements and not sustainable organic growth.

Technicals on the XRP/USD pair are strongly bearish after a failed bullish reversal attempt throughout November. The litmus tests for trend reversal include price position relative to both the 200EMA and the Cloud on the daily timeframe. A breach of US$0.51 on high volume would likely meet these requirements. The XRP/BTC pair leans neutral to bearish with a wait-and-see approach. Short entries should be considered below 82,000 sats and long entries should be considered above 94,000 sats.