(Bloomberg) — Amid the astonishing recovery this year by most of the world’s biggest cryptocurrencies, one stands out. The token known as XRP has tumbled about 20%, while eight of the other 10 biggest coins are posting outsized gains. Even after losing about $3 billion in market capitalization in 2019, XRP remains the third-largest digital asset after Bitcoin and Ethereum.
Many investors are placing the blame on Ripple, the payment services provider that controls, along with its founders, about 75% of all XRP tokens, according to data researcher Coin Metrics.
The company’s reports srehow it’s been selling the coin at an increasing pace — though Ripple said Friday it doesn’t view it that way. Co-founder Jed McCaleb, who is no longer at Ripple, alone sells 500,000 XRP daily, according to Coin Metrics.
“The company has been steadily increasing their sales of XRP over the previous three quarters, likely inflicting downward price pressure on XRP,” said Kyle Samani, co-founder of crypto hedge fund Multicoin Capital in Austin, Texas. Samani is shorting XRP. “Savvy investors have known this for some time; however, for whatever reason the market is just now picking up the narrative and reacting.”
More than 2,100 people have signed an online petition on Change.org in the last two weeks to “stop Ripple dumping.”
Ripple, for its part, disputed the increase. Programmatic sales of XRP “as a percentage of volume and the actual supply inflation rate were lower” than for Bitcoin or Ether, it said in a statement on Friday. Sales had been tied to trading volumes reported by exchanges, and recognizing that some platforms were misreporting volumes, Ripple has “substantially reduced XRP sales,” a trend that’s expected to continue this quarter, the company said. It also said discrepancies Coin Metrics found come down “to a timeline issue.”
“We believe in being as transparent as possible,” it said, pointing to its quarterly reports. “This transparency is unmatched in the crypto industry.”
The sales were supposed to be predictable. Back in 2017, Ripple created an escrow where it deposited 55 billion of its XRP, promising it would get access to no more than 1 billion XRP monthly, so as to assure investors it wouldn’t flood the market. Each month, it would offer the released XRP to institutional buyers, and deposit the unsold amount back into the escrow.
Problem is, it’s depositing the coins back into the escrow differently than many understood it would, according to Nic Carter, co-founder of tracker Coin Metrics. In addition, while Ripple publicly reports how much XRP it has sold every quarter, its reported figures have differed from actual sales numbers at least twice, Coin Metrics’ analysis shows.
“I’d say it is unexpected, the amount they will release from escrow is not known in advance,” Carter said. “So that’s why, under market efficiency, it’s plausible that this could nevertheless consist of a ‘supply shock,’ as opposed to Bitcoin issuance, which is predictable and known in advance.”
The pace of reported selling has increased recently.
“Ripple has been more aggressive in their selling lately,” Eric Turner, director of research at Messari, said in an email. “Last quarter’s $251.5 million was up almost 50% from the $169.4 million sold in Q1.”
There’s also rising concern that regulators will find XRP to be an unregistered security, and potentially stop its trading. Plaintiffs suing Ripple filed an amended complaint on Aug. 5 that claimed XRP is a security.
“Regulatory action is one of the major existential threats to Ripple and XRP, and for good reason,” Samani said. “This, understandably, has the XRP base rattled and questioning the long-term viability of both the asset and Ripple.
Ripple’s emerging business — of using XRP to facilitate instant payments between parties such as banks — is facing increasing competition as well. In June, Facebook Inc. said it will launch its Libra coin to facilitate payments. The Federal Reserve plans to launch its new FedNow service for real-time payments and settlements as soon as 2023.
But it’s Ripple’s sell-off, and the fact it’s been greater than expected, that worries investors and analysts the most.
“Ripple keeps selling because it is a major source of revenue for them,” Turner said. “I don’t expect them to stop selling any time soon. If someone gave you a printing press that spits out hundreds of millions of dollars a quarter, would you stop using it?”