Ripple has done it again. With a 24.2 percent 24-hour increase, it surpassed Ethereum to become the world’s second largest cryptocurrency. However, investors are concerned about Ripple’s mid-term price trajectory.
On May 8, Cointelegraph reported that Ripple overtook Ethereum after the formation of a Japanese bank consortium which further triggered the attention of institutional investors and casual traders in Japan. At the time, the Japan Bank Consortium stated:
“In order to address these emerging needs, banks have come together to launch the Japan Bank Consortium for cross-border and domestic payments which enable a flexible and efficient payment system. It is the world’s first case to implement Ripple solution in a cloud environment.”
Since then, Ripple has demonstrated a high level of volatility, mostly because its trading is concentrated in two major markets: Japan and South Korea. According to various Bitcoin and digital market data providers including CoinMarketCap, nearly 15 percent of Ripple’s daily trades are processed in South Korea and, along with Japan, it is processing the majority of orders.
Inorganic price surge
The main issue with Ripple’s recent price trend is its inorganic growth. Nearly overnight, Ripple price and market cap surged by around 34.4 percent and this time, unlike its price surge on May 8, the sudden increase in Ripple price is unjustified.
It is abnormal for a Blockchain network and cryptocurrency with the size of Ripple to add $3 bln to its market cap without a specific cause.
More importantly, as shown in the chart shared below, Ripple’s market cap has risen from around $200 mln to $11.4 bln in a two-month period. That is a 57x growth in a period of 60 days.
Ripple nears $12 billion, overtakes Ethereum again to become 2nd largest cryptocurrency. Doesn't look organic at all though. #ripple #xrp pic.twitter.com/g6z7DOhDfV— Joseph Young (@iamjosephyoung) May 16, 2017
Recently Cointelegraph emphasized that the unexpected and overwhelming performance of Ripple can be attributed to the explosive growth of the Japanese altcoin industry.
Last week, ORB Project Leader and IndieSquare Co-Founder Koji Higashi explained that the legalization of Bitcoin and the exponential growth of the cryptocurrency market led most institutional investors and casual traders in Japan to believe investing in other cryptocurrencies apart from Bitcoin was profitable and well-based.
The problem with this trend, as Higashi noted in his analysis, is that the majority of traders are investing in altcoins like Ripple and NEM without having actual knowledge of their purpose, origin and technical specifications.
“Another thing to note about this new trend is that the general lack of understanding or appreciation of the technology by many of new users. This is no surprise and all of us have been there at one point but the new wave of Japanese investors seem to be exhibiting a whole new level of incomprehension and misguided decision making in my opinion. Many of them don’t bother researching what those coins do nor what they are useful for but rather follow whatever they hear in exchanges’ chatrooms.”
The big question for investors is, is Ripple’s price trend and growth sustainable in the mid-term and can Ripple maintain this growth rate in the long run.