XRP Price Analysis – Yet to turn bullish

Ripple (XRP) is a payment protocol and network token which aims to compete with the banking protocol SWIFT. The crypto asset is currently down 92% from the all time high established in January 2018. The XRP market cap stands at US$12.69 billion with US$434 million in trade volume over the past 24 hours.

Source: Coin360.io

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.

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 Q4 2018 report revealed 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. Ripple’s Q1 2019 report is not currently available.

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 51.8 billion XRP currently in held escrow, hold 78.49% of the total circulating supply. Ripple holds a further 6.4 billion XRP, leaving 41.79 billion XRP in circulation.

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.

For consensus, the XRP network uses The Ripple Protocol Consensus Algorithm, which aggregates collectively-trusted subnetworks of nodes and validators. There are currently 1034 public nodes with only 24% running the most recent software, version 1.2.3. The network also has 139 active validators, 49% of which have an anonymous domain, with non-Ripple validators accounting for 75% 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. 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. Earlier this month, 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. This week, 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.

This month, 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 month, 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.

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.

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$0.00034 (not shown).

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

Daily active addresses (DAA) have decreased substantially since January 2018 (line, chart below) and have been ranging between 4,000-9,000 since July 2018. DAA currently remain above the 2017 average. 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 has essentially held between US$120 and US$6500 since March 2018. 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.

Source: coinmetrics.io

The 30-day Kalichkin network value to estimated on-chain daily transaction ratio (NVT) is currently above 100, which is a historic norm (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 a much higher NVT currently.

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 1.2.3 was released earlier. 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

XRP has remained bound to a tight trading range over the past few weeks, which is indicative of consolidation before a larger move. 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.

On the daily chart, the 50 and 200 day EMAs have been bearishly crossed since May 21st. XRP recently tapped the 200 EMA and is now sitting just above the 50 EMA. 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 (horizontal bars) shows that most of the trading 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, the asset has been trading in a triangular range. Falling below the triangle support suggests a target of US$0.24. Long/short open interest (top panel, chart below) on Bitfinex is currently 91% long, with longs 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 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. The lower support diagonal also matches the 2017 triangular consolidation zone. Price will continually attempt to return to the median line (yellow) throughout the duration of the trend. The trend will remain bearish until the asset breaches the PF, currently above US$0.55.

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 neutral to bearish; price is nearly below the Cloud, the Cloud is bearish, the TK lines are uncrossed, and the Lagging Span is below the Cloud and in price. A traditional long entry triggers when price is once again above the Cloud, which has only happened once in mid-November 2018. The flat kumo at US$0.422 and US$0.51 will act as a magnet for price if the current lows are not breached. If price does move below the Cloud, a short entry signal will trigger.

Lastly, on the daily XRP/BTC chart, trend metrics show the likelihood of bearish continuation. A bearish Kumo breakout occurred on February 16th, follows by a bearish 50/200EMA Death Cross on March 26th. Since then, price has continued to drift downwards and is now building a bullish divergence, suggestive of waning bearish momentum. However, VPVR suggests a lack of volume support until the 5,000 sat zone, which also represents a psychological support level.

Conclusion

Fundamentals continue to show low network use and relatively high average transaction values with nearly zero fees. It remains difficult or impossible to determine if this represents institutional use or if these metric values are fueled purely by speculative demand. Transfers between exchanges and user wallets, as well as large monthly escrow transactions will inflate average transaction values and cause declining pressure on NVT. Further, with a Coinbase listing announcement in the rearview, there are very few potential bullish announcements in the near future. For many, regulatory clarity is still needed in regards to the possibility of the XRP token representing an unregistered securities offering by Ripple Labs.

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 demand in and of itself. The most bullish price action over the past few months 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 are beginning to lean increasingly bearish with XRP/BTC pair in the throes of an ongoing bearish trend. The litmus tests for a trend reversal include price position relative to both the 200E MA and the Cloud on the daily timeframe. A breach of US$0.51 on high volume would likely meet these requirements. Otherwise, bearish continuation towards US$0.025 and 5,000 sats remains likely in the near term.