Banking Half-Blood: Ripple's Life After Sobering
AnalysisBit News Today3 min read
Wall Street was tough on Ripple last month. The San Francisco startup that wants to be the "interbank" cryptocurrency took a hit in the ongoing crypto market downturn, but has also faced regulatory uncertainty that has investor sentiment on edge.
Investors in cryptocurrency markets were aggressive sellers last month as the total crypto market cap dropped sharply. Ripple's XRP token, which had been one of the three largest cryptocurrencies after Bitcoin and Ethereum, saw its price fall by more than a third from its peak. ## Ripple Hopes to Partner With Banks
Ripple aims to partner with large banks and financial institutions, providing an efficient way to make cross-border money transfers using blockchain technology. Some large banks, as well as a growing number of small banks, have announced pilot project and partnerships this year with Ripple.
However, these pilot projects have not yet brought in any significant revenue for Ripple. And with its valuation rivaling public companies, the San Francisco startup is under growing pressure to execute on its business model. Investors have questioned Ripple's high valuation, which has soared to several billion dollars over the last year. ## Regulators Take Note
As the company's valuation surged, regulators took notice. In January, the Securities and Exchange Commission served Ripple's co-founder Chris Larsen with a Wells notice, saying the agency had plans to take enforcement action against the company and its executives. The notice came amid broader concerns from regulators about the potential regulatory liability hanging over the cryptocurrency market.
This recent regression in the cryptocurrency market has put new pressure on Ripple and its technology in a fraught moment for the cryptocurrency as a whole. Over the last few years, regulators have increasingly scrutinized cryptocurrencies, particularly as retail investors jumped in in volume over the last year. ## Ripple Point to Institutional Partners
Ripple management has sought to differentiate the company by emphasizing partnerships with established financial institutions. Ripple's executives say that this is a crucial distinction between Ripple and other cryptocurrency companies that have fallen afoul of regulators in the past.
"We have a large and growing number of financial institutions, including major banks, that use our technology," said Ripple's director of investor relations, Emma Loizeaux. "And we are working with regulators and policymakers to ensure that our technology and products are compliant with all relevant laws and regulations."
Ms. Loizeaux added that Ripple was also keen to remind investors that its technology wasn't just for speculators, but an infrastructure product used by businesses to make cheaper and faster payments. Ripple's executives have repeatedly cited research that found its technology could save banks a significant amount on cross-border payments.
Such arguments have done little to sway investors who are currently in a selling mood in the face of regulatory risks.
Another issue that has weighed on investor sentiment is the large number of XRP tokens that were pre-mined and are held by Ripple. And a large chunk of its holdings is being locked up in an escrow account. A sizable amount of the XRP produced will be locked up in escrow, becoming available in installments on a set schedule.
The large circulating supply, along with the amount of the asset controlled by Ripple, has weighed on investor sentiment. This is as market participants worry about negative price impacts as tokens held by Ripple are released into the market.
"For us, the major issue with Ripple is the large circulating supply and the amount of XRP that Ripple holds. That can be a concern for some investors," said Jonathan Shapoff, the chairman of the board of directors at Caitlin/Crypto Capital.
Investors will be watching to see if Ripple executives discuss these issues in any detail during its appearance at the CoinDesk Consensus conference in April.
