The first and second-largest cryptocurrencies by market capitalization, Bitcoin (BTC) and Ripple (XRP), respectively, are our focus in today as we discuss the possibility that XRP may be a better store of value than BTC amid volatile cryptocurrency market conditions.
A large sell-off of digital assets began on November 14th, 2018 when total cryptocurrency market capitalization shed USD27bn in a 24-hour period. Since then, total cryptocurrency market capitalization has given up roughly USD100bn, falling 47.62% to USD110.8bn. In that period, the price of BTC is down 44.98% while the price of XRP is down 39.41%.
An analysis of daily returns for BTC and XRP since November 14th, 2018 reveals that XRP appears to be a better store of value than BTC during periods of high volatility.
Since November 14th, XRP has outperformed BTC in 57% of trading days.
BTC has fallen in excess of 5% in 9 trading days since November 14th, while XRP has only observed 6 declines greater than 5% since November 14th. Additionally, BTC fell more than 10% in 2 separate trading sessions during that period while XRP observed 0 daily price declines of that magnitude.
It is interesting to note, however, that on days where BTC is positive, XRP underperformed BTC in 69.23% trading sessions since November 14th.
We believe that XRP's outperformance during volatile crypto markets can be attributed to the somewhat centralized nature of XRP. Upon launching XRP in 2012, Ripple Labs placed 55bn XRP tokens in a cryptographically-secured escrow account that allows Ripple Labs to sell up to 1bn XRP tokens each month.
Because Ripple Labs maintains control over the floating supply of XRP tokens, the company is able to soften the blow of broader market downturns by tightening the supply of available XRP tokens. This same concept can be applied to attribute XRP's underperformance of BTC during bullish cryptocurrency markets. During market upturns, Ripple Labs may be more liberal in the availability of XRP tokens to take advantage of high demand and to realize fiat profits. An uptick in the available supply of XRP tokens during broader market upturns would effectively cause XRP to underperform other cryptocurrencies, all else being equal.