XRP Market Cap may be $6.1 billion overstated

This post was originally published on January 24, 2019, and sent to Messari Pro subscribers. A response to this report from Ripple can be found here.

If history is a guide, Ripple is due to disclose its Q4 2018 transparency report as early as today. In advance of that report, we conducted extensive research into the health and legitimacy of the currently quoted XRP "market cap” available on third party crypto data services and exchanges. We believe the figure is significantly overstated; potentially by as much as $6.1 billion. We have reached out multiple times to Ripple representatives for comment, but have not yet received a response to our inquiries. We acknowledge that some of the estimates in this report lack precision, but believe they are directionally correct, and presented in good faith. We look forward to Ripple’s response, and will update this report accordingly if and when they do reply.

Summary:

• XRP’s liquid “circulating supply” and “market cap” could be overstated by 46%, which would put total XRP “market cap” at $6.9 billion vs. $13.0 billion widely reported at current USD-XRP exchange rate.
  
• We recommend major indices, including Bloomberg-Galaxy, MVIS CryptoCompare, and the Bitwise 10 Large Cap Crypto Index, and others, as well as passive funds such as Grayscale’s Digital Large Cap, and Bitwise’s 10 Private Index Fund, review this report and reach out to us with questions regarding our methodology. (Our API documentation is available for review.) Pursuant to this report's finding that the true liquid market cap of XRP is significantly lower than previously reported, index weightings of XRP should likely be reduced. We do not believe reliance on Ripple’s XRP data API can be expected to yield accurate circulating supply figures in light of these findings. However, a more precise estimate of XRP supply will likely require proactive disclosures from Ripple, given the contractual restrictions the company has placed on a large percentage of its XRP resales.
  
• In addition to the 59 billion XRP owned by Ripple and held on the company’s balance sheet (52.5 billion in long-term escrow, and 6.5 billion illiquid, but available for restricted sales), there could be significant, persistent sell-side pressure in the XRP market depending on the length and structure of selling restrictions placed on Ripple’s market-making partners, a Ripple affiliated foundation, and Ripple’s co-founders, all of which appear to have negotiated rate limits for sales based on exchange trading volume of $XRP.