Q3 2018 XRP Markets Report

By Cory Johnson & Miguel Vias

Ripple sells $163 million in XRP amidst rising volatility and volume in Q3 2018

• Ripple sales accounted for 0.43 percent of global XRP volume
• Three billion XRP released out of cryptographic escrow, 2.6 billion XRP returned to escrow
• Wall Street firms take early steps towards providing institutional custody of digital assets

RIPPLE’S XRP SALES

In Q3 2018, Ripple sold $65.27 million worth of XRP programmatically. This represented 0.172 percent, or 17.2 basis points of the total XRP volume traded globally in the third quarter.

In addition, XRP II, LLC — a Ripple subsidiary that is a registered and licensed money service business (MSB) — sold $98.06 million worth of XRP in institutional direct sales. In total, the company sold $163.33 million worth of XRP in Q3.

XRP volatility was light throughout most of the quarter, then jumped in the last two weeks of the quarter as the price also increased.

Q3 ESCROW ACTIVITY

In Q4 2017, Ripple locked up 55 billion XRP in a cryptographically-secured escrow account. Ripple created the lockup to create certainty of XRP supply at any given time. Due to that lockup, Ripple has access to only 13 percent of the total XRP in circulation. Ripple’s sales were a tiny fraction of that amount.

In Q3 2018, 3 billion XRP was again released out of escrow (1 billion each month). 2.6 billion XRP was subsequently put into new escrow contracts.

The remaining 400 million XRP not returned to escrow is being used in a variety of ways to help support the XRP ecosystem.

MARKET COMMENTARY

The total market capitalization of digital assets fell again in the third quarter, declining 12.0 percent. Most of the major assets, including XRP, traded in a continued tight correlation, though XRP price rallied at quarter end.

Industry activity continued its growth with a myriad of announcements (e.g. Coil began testing its web monetization product with more than 200 websites enabling XRP payments), although three trends stood out in Q3.

ICOs and Regulation

Q3 saw a pullback in initial coin offering (ICO) issuances on the heels of a report by ICORating that said 55 percent of initial coin offerings failed to complete their crowdfundings in the second quarter.

In addition, U.S. regulators took a number of actions throughout the quarter in an effort to support healthy markets:

• ICO promoters were a particular target. On Sept. 11, the SEC filed its first case arguing that an unregistered broker-dealer sold digital tokens. La Jolla, California-based “Crypto Asset Management” raised $3.6 million from 44 investors in 15 states last year and had $37 million under management by year end. The firm was censured and agreed to pay a $200,000 penalty.
• In its first cryptocurrency action, FINRA charged a Massachusetts man who announced “HempCoin” to induce investment into his “worthless” company “Rocky Mountain Ayre.” FINRA exerted jurisdiction citing Ayre’s previous registration as a broker-dealer.
• The Securities and Exchange Commission rejected a Bitcoin ETF application by Cameron and Tyler Winkelvoss. “A substantial majority of Bitcoin trading occurs on unregulated venues overseas that are relatively new and that, generally, appear to trade only digital assets,” the SEC said in a lengthy filing. Further, the SEC found that Bitcoin “is not demonstrably resistant to manipulation.”
• In a closely watched decision, in September a federal judge in Boston ruled that the Commodity Futures Trading Commission sufficiently alleged that a virtual currency named My Big Coin met the definition of a commodity and fell under the CFTC’s purview.

Geographic Trends

In the final days of the quarter, South Korean exchanges emerged as some of leading trading venues for digital assets.

Also of note is the country of Malta. For more than two-thirds of the quarter, overall global digital asset trading was led by exchanges based in Malta.

Over the last six months, Malta has proposed a number of rules that create a clear legal framework for the trading of digital assets. Additionally, Malta lets international companies pay as little as 5 percent in corporate taxes. Prime Minister Dr. Joseph Muscat has called cryptocurrencies “the inevitable future of money.” This has led to a number of large crypto firms, including Binance and OKEX Technology, moving their operations to the Mediterranean island nation.

Wall Street Adoption

Big institutional firms continue moving towards backing crypto trading, but have yet to launch offerings into the market. In August, Bloomberg News reported that Goldman Sachs Group was considering a plan to offer custody for crypto funds, citing “people with knowledge of the matter.” In the second quarter Nomura Holdings announced a custody consortium called Komainu, and Bank of New York Mellon, JPMorgan Chase and Northern Trust are all reportedly exploring or already working-on crypto-custody services.

Announcements of this sort continued in Q3, but the efforts have yet to yield wide spread institutional trading. This has allowed emerging companies to build a handful of large businesses trading digital assets — traditional Wall Street firms are waiting in the wings.

Last quarter’s (Q2 2018) XRP market report can be found here.