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Ripple has long held a controversial position in the cryptocurrency industry. The rise of Ripple’s in-house token, XRP, to the position of the second largest cryptocurrency by market capitalization was validation enough for some that the company was set to play a major role in the industry for many years to come. However, since those happy days, momentum has slowed and, aside from a few important signs, the company has been haunted by rumors and a steady decline in XRP’s value.
Ripple fails to make a stir online
Due to the ambitious philosophical goals at the heart of the cryptocurrency ecosystem, it’s not uncommon to see investors favoring a particular token, fighting it behind their keyboards on social media. XRP defenders were among the most heated.
But it looks like the token’s “XRP Army” is struggling to fill the ranks. According to a new study by the social trading and investment platform eToro and crypto data provider The Tie, which indicated that discussion of XRP dropped 16% in the first quarter of 2020.
While it’s important to note that Twitter mentions ebb and flow based on a huge variety of market movements and business activities, the report found that the number of users of the so-called XRP army has dropped by a whopping 82% since January 2018. Token’s social media activity problems, however, don’t end there. A list of Telegram groups compiled by a Twitter user on April 15 showed that over 63% of @Ripple members had left since June 2018.
Mohamed Zidan, ThinkMarkets’ chief market strategist, told Cointelegraph that XRP has struggled to find a function in the cryptosphere and has advanced his view that belief in the token is wavering:
“Believers in XRP and other cryptocurrencies have gradually dwindled and few people still believe it. It was important to witness how the markets reacted to cryptocurrencies during the coronavirus pandemic. It proved that it cannot be a safe haven but more like a risky asset. Current stagnation and low volumes suggest its place in the financial equation has yet to be found. “
Mass-token liquidations send a mixed message to investors
One of the most common criticisms leveled at Ripple is the high amount of XRP token liquidations. While liquidations had previously been something that privately irritated many cryptocurrency investors, few people thought they were acting in their own hands.
The first time cryptocurrency companies face significant legal challenges is usually after an initial coin offering. Due to the lack of clarity on how to regulate cryptocurrencies, many new projects are blamed for failing under the Securities Act – and Ripple is no exception.
Initially filed as a class action lawsuit in May 2018, claiming Ripple violated the Securities Act through a 2013 ICO, with the modified March 25 complaint accusing Ripple CEO Brad Garlinghouse of misleading investors about the attractiveness of XRP while liquidating secretly his holdings.
The amended complaint claims the CEO presented a bullish outlook to investors, presenting himself as “very, very, very long” and “on the HODL side” on XRP during 2017. Despite Garlinhouse’s positive online posts, plaintiffs accuse him of ave sold 67 million XRPs in 2017, further adding that he was liquidating the tokens just days after receiving them from Ripple.
One of the main criticisms of cryptocurrencies is that they have no intrinsic value. While most people who have invested money in digital assets have a vested interest in claiming they do. It appears that the plaintiffs are now disillusioned with the actual token value:
“All of the 100 billion existing XRPs were created out of thin air by Ripple at its inception in 2013 prior to any distribution and with no functionality other than as a speculative investment.”
Plaintiffs also said that the company’s own funds were significantly overshadowed by the defendants-owned XRP, arguing that Ripple’s valuation is largely based on the value of the tokens it owns and sells:
“The value of XRP owned by the defendants substantially exceeds the value of Ripple’s revenue or cash flow from all other sources. Ripple’s dominant value proposition is the XRP tokens it owns and sells. Ripple’s value proposition as a company depends on promoting XRP, however XRP is wholly or essentially pre-functional and bought by investors in anticipation of profits based on Ripple’s efforts. ”
ThinkMarkets’ Zidan outlined to Cointelegraph his view that the liquidations are aimed at strengthening the company’s cash position in order to create justification for its high valuation, but added that further liquidations should be expected:
“The liquidation aims to strengthen the company’s cash position and try to adjust its financial position for valuation. XRP liquidations are likely to continue alongside other cryptocurrencies. If you want it to stop or at least slow down, you have to provide real value. “
The plaintiffs also questioned how both Ripple and Garlinghouse had represented XRP, arguing that any claims for the token as having utility as a “bridging currency” were simply to avoid classification as a stock, according to class action lawsuit:
“These statements are misrepresentations and omissions of material facts to investors because the usefulness of XRP (or lack thereof) is pertinent to the value of XRP. Put simply, these false claims about the usefulness of XRP are nothing more than an attempt to avoid the enforcement of securities laws and drive demand for XRP. “
The Tie reported that the company relied on XRP liquidations to maintain positive cash flow in 2019: “While Ripple only liquidated $ 13 million of its XRP holdings in Q4 2019 (the lowest in three years), it has sold over $ 250 million in the third quarter of last year. It is not yet known how much XRP Ripple sold in the first quarter of 2020. “
Ripple’s attempt to dismiss the case was thwarted by US District Judge Phyllis Hamilton, who allowed him to move forward in February. The progression of the case, however, came with a warning. Hamilton demanded that plaintiffs explain their views that Ripple had filed fraudulent claims in more detail, citing a number of allegations in the case that were too general in scope.
The analyst offers sobering perspectives on Ripple
For many years, the very concept of cryptocurrency remained in the shadows, existing as whispers in the exchanges between ambitious and politically driven enthusiasts who dreamed of a better financial system. Among the masses, cryptocurrencies are remembered for the price levels reached by Bitcoin (BTC) in 2017, along with those who bought too late and are still waiting to take a profit. Despite the difficult conditions, many companies have managed to hold out until now. According to ThinkMarkets’ Zidan, the time for companies like Ripple relying on their tokens may be up:
“XRP is neither a profitable asset nor a reliable safe haven. So what determines its value? It was only the cryptocurrency that managed to raise its price. If we look at Ripple only as a cryptocurrency provider, then comes the its value only from XRP, which technically has no intrinsic value as a store of value. The intrinsic value will be derived from the company’s ability to generate sustainable income in the coming years. “
While Zidan had a conservative outlook on XRP’s outlook, he told Cointelegraph it’s still worth noting that the company is able to raise hundreds of millions of dollars in funding rounds, which helps boost its valuation:
“The main drivers for the disappointing numbers in sales in the fourth quarter of 2019 were the decline in institutional sales and the pause in programmatic sales (stock exchanges). However, the company successfully raised $ 200 million in a Series C round, which flirts the company’s value at $ 10 billion and reflects that there is still interest in a company but of lesser value. “
Many critics over the years have argued that high cryptocurrency prices were simply a bubble, and it appears that Zidan, to some extent, agrees with them. Zidan explained to Cointelegraph that he thinks high prices have been a hangover since 2017 and that companies like Ripple need to find other ways to create use cases for their currencies instead of lack of intrinsic value:
“The decline can be seen as a means to return to normal industry growth as clearly, the crypto craze we witnessed during 2017 is over, so XRP and other cryptocurrencies seemed like a get-rich-quick scheme. But over time, it becomes obvious that it was a bubble and focus more on how sustainable the revenue stream is for the company. I think they should focus on payment solutions, even if it won’t be easy to compete with other established companies like PayPal and others. “
