Benchmark Crypto Indices Weekly Performance Review — May 5
Over the past 7 days, the FS CryptoFX Agg Index increased by 12.6%, compared to a 0.2% decrease for the S&P 500 (Slide 6). Bitcoin’s price surged above $9,000 last Wednesday and, at a point, reached nearly $9,500. This rally is likely to be a good sign as we are approaching the Bitcoin mining reward halvening event in less than one week. Another good sign was that Bitcoin broke through its 200DMA for the first time since the February crash. As one of our crypto investment rules, a break above its 200DMA generally signals a positive long-term trend and has been bullish for Bitcoin historically.
Sector Rotation
Bitcoin led all other segments of crypto markets this past week. And because of the strong performance of Bitcoin, FS CryptoFX Commodity index and FS CryptoFX Large cap 10 index were the best performing sector-based and size-based index, respectively. The strong momentum of FS CryptoFX Platform index persisted and had the best performance among all non-Bitcoin sectors. Zilliqa and Stellar led within the sector, up 20% and 17%, respectively. The largest member, Ethereum, also gained 7% over the past week. FS CryptoFX Privacy index was the only index that declined over the past week and was down 0.1%. Dash was the primary cause of the laggardship, as it was down 3% over the past week.
Ripple further scales back XRP sales in Q1
Ripple released its Q1 XRP markets report this week. The biggest takeaway? Ripple’s big pause of XRP sales continues.
Recall that Ripple owns a large chunk of the XRP token supply; about 55% of total supply. In response to the investment community’s well-founded concerns over this concentration, Ripple created a series of Escrow contracts whereby XRP is temporarily locked. Each month one contract releases 1 billion of XRP (1% of the total supply) for sale or for broader ecosystem growth initiatives and the Company is free to do as it pleases with the XRP.
While Ripple has historically returned about 80% of released coins into escrow, it has also sold a large portion of the permanently released coins onto the market. In 2019 these sales totaled $500 million in aggregate and sales in Q2 alone topped out at $250MM.While it is hard to say how large of an impact these 2019 sales had on token price, it suffices to say that these $500MM in sales did not help. XRP cratered 46% on in 2019 compared to massive 64% rally for Bitcoin.
Possibly due to the Company’s increasing concern over the XRP token’s legal standing, Q1 ’20 sales were just $1.8MM and signal a sustained downtrend in Ripple’s XRP sales from $250 million in Q2 ’19 to $66MM in Q3 and just $13MM in Q4. All else equal, less tokens coming onto market is a net positive for anyone holding the XRP token in hopes of capital appreciation.
However, the investment thesis of XRP over the long term is still questionable between the stability of the token price (as an intermediate currency in the Ripple network) and the upside potential. Interestingly, the report also cited strong growth from the Company’s On-Demand Liquidity (ODL) service which employs the XRP token in payments. According to the report, this service saw dollar value transacted increase 294% quarter over quarter. As with most stats though, the devil is in the details.
Major Ripple partner, MoneyGram, reported in its Q1 filing that it received a total of $16MM of incentives from Ripple in Q1 ’20; up from a combined $11.3 million paid during Q3 and Q4 19. To date, Ripple has invested over $70MM in the Company. So, would this increased traction be considered organic network growth? Absolutely not – it came with a hefty price tag.
Additionally, it is worth noting that daily transacted value on the XRP ledger, while it has seen some growth over the last year, remains in the $150MM range; well below bitcoin’s $2Bn+ in daily transacted value. Nevertheless, through its XRP sales and its successful fundraising efforts, Ripple has amassed a war chest of funds to deploy into the XRP ecosystem. Over the long-term, these strategic investments and the related on-chain data warrant close watching.
Nevertheless, investors would be wise to analyze Ripple the firm’s performance and XRP token’s success separately.
