Ripple Part 2, or How I Learned to Stop Worrying and Sell the News
With Swell underway, we felt now to be a salient time to release an update to our Ripple Short-Term Catalyst Thesis.
We exited the material part of our 2500 sat long at the 3700 sat level for a variety of reasons, including the more sluggish nature of this year’s pre-conference rally.
Trough to peak, a trader could have realized nearly 50% in approximately one month, a prize given the alt market conditions of the period.
We are now pivoting towards the sell the news leg of the trade, with an aim to establishing a full short line by the end of Swell.
Buy the Rumor, Sell the News
There are few speculator’s mantras that have done cryptocurrency traders as well as the one that reminds them to buy in anticipation of news and sell after the headline has materialized. In the case of Ripple, this cycle has been magnified by the company’s own distribution of its tokens. Swell acts as an infomercial that drives excitement and interest, with expectation of surprise partnership and product announcements. This elevated interest has historically manifested itself in higher trading volumes and XRP price appreciation. The company has taken that environment as an opportunity to sell XRP to the public more aggressively. A cynic may infer that the conferences’ very purpose is that of a distribution mechanism.
Ripple has, in prior Swells, been the consummate showman, including one or more surprise announcements during the conference. This year will most likely be no different. The astute observer may make an educated guess as to who this year’s big-ticket partnership may be based on some choice context provided by the last month. An upthrust if news is released during day 2 of Swell would provide an ideal short entry.
Onchain transactions Confirm Distribution
In its Q3 report Ripple claimed to have significantly reduced programmatic and OTC sales ($66.2MM from $251.5MM in Q2).1 700MM XRP was unlocked from escrow in Q3; at the prevailing prices, this means that Ripple may have sold only approximately one-third of the XRP released in Q3 with the remainder available for sale. Two more months’ worth of escrow has been unlocked since then and is available for sale.
As mentioned in our initial thesis, Ripple uses a number of market making firms to distribute XRP to exchange buyers.
XRP flows in a branch-like way from large holding accounts into more addresses that hold progressively smaller amounts and ultimately end up on exchanges. Whether the source for some of these tokens is Ripple itself or other large investors is uncertain.2 But it is of importance that distribution has begun by certain addresses to exchanges.
— rMjjMBDVwWdRsbC4QaU98MXQgSGFVv2G1c:
— rGvWgm8vhSRFT7eYC1fyCcea21rwLcNmmF:
Elsewhere, the $3B Chinese ponzi scheme PlusToken has begun to scramble 100MM of the nearly 500MM XRP victims sent to its main address in what is likely an effort to obfuscate the source of the funds with the ultimate intention to liquidate the tokens (see addresses rhiRLuhwSP2XE2mDct2iFxRTmBfAkDCidJ and rJYH71GL4rXJ9qW3ojtbcEGRb8xZrvRavk).
Last year, a flurry of on-chain activity began immediately following the conclusion of Swell as XRP was sent to exchange addresses. This catalyzed the subsequent sell-off. We believe that this will be the likely outcome in 2019 as well, adding additional supply pressure to the XRP already sitting on exchanges. Although this year’s run into Swell leaves less meat on the bone for a short sale, it is also indicative of greater structural weakness within the alt space and XRP specifically, which may exacerbate the post-conference bleed out.
“There is simplicity beyond sophistication.”
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1 https://www.ripple.com/insights/q3-2019-markets-report/
2 https://twitter.com/silkjaer/status/1149317757051310080?lang=en
