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As with the norm in the crypto market, many legitimate crypto firms carry out a quarterly audit to show investors and the general public how much the firm is profitable and how much it is worth at every quarter. This helps experts to estimate their market cap, and such audits also help maintain transparency in the crypto market.
Prior to the Ripple’s disclosure of its 4th quarter of 2018 report, the Messari Research team conducted an extensive research into the health and legitimacy of the current value ascribed to Ripple as its market capitalization.
A close look by the Messari team suggests that Ripple’s market cap may be significantly overstated by $6.1 billion. Ripple is currently capped at 13 billion USD as opposed to 6.9 billion USD calculated by the Messari team. If this value is correct, then Ripple’s market cap is currently overstated by as much as 48%. The team claims they have reached out to Ripple’s management a number of times and they are yet to get a response to their questions. The team stated that Ripple is yet to share its methodology for calculating trading volumes of the digital coin, XRP. This, according to experts, is crucial for driving selling restrictions.
A further probe into Ripple shows that in addition to the 59 billion XRP held in the firm’s balance sheet – that is the combination of 6.5 billion XRP available for sale and 52.5 billion deposited in a long-term escrow – there could be a significant sell-side pressure in the XRP market. This assertion is based on length and selling restrictions posed on the market making partners and co-founders who seem to have negotiated rate limits for sales based on the exchange trading volume of XRP.
The research team also uncovered the fact that over 99% of XRP trading volume came from overseas. This gives rise to some concerns as to whether or not the transactions are wash trading, or in other words, market manipulation. When asked how XRP reference trading volume is calculated, Jed McCaleb, XRP co-founder, stated that his current share of XRP – which totals about 6.7 billion – can only be sold at a rate of less than 1% of daily trading volume. Consequently, he believes he is in no position to say how the reference trading volume is calculated. The Messari team is of the belief that the same selling restrictions apply to other co-founders such as Chris Larsen and Arthur Britto.
Messari suggests that major indices like Bitwise, Bloomberg-Galaxy, and MVIS CryptoCompare should revise their circulating supply assumption for XRP and try reflecting Ripple’s true network liquidity.
In conclusion, the Messari team urges Ripple to disclose its volume-based selling methodology so investors would better understand the inflation and selling pressure in XRP. This would go a long way to protect consumers and promote fair and efficient crypto markets.