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Ripple’s IPO & XRP

Cross-border payments giant Ripple announced its plans to go public later in 2020. The question being circulated is: how will it affect XRP?

Ripple Fundraising

CEO Brad Garlinghouse stated at the World Economic Forum 2020: “In the next 12 months, you’ll see IPOs in the crypto/blockchain space. We’re not going to be the first and we’re not going to be the last, but I expect us to be on the leading side… it’s a natural evolution for our company”.

To date, Ripple has raised a colossal $293 million over three rounds. The last of which, series C led by Tetragon, accounted for $200 million on its own. By going through an initial public offering (IPO), Ripple will be offering shares on the open market for the public to buy. This is yet another step towards raising money for the firm, how much will be raised is yet to be seen.

Ripple & XRP

Ripple has been on the receiving end of a class-action lawsuit because of XRP. Several investors having lost money by investing in XRP in early 2018 attacked the company in the court of law on the grounds of XRP being an unregistered security.

We had discussed in an earlier journal that the main issue faced is that the creators of the XRP ledger are the founders of Ripple. Had it been otherwise, this discussion would likely not be where it is today.

This last round of fundraising (IPO) partially addresses whether XRP is a security or not, as Ripple is raising funds through usual financing routes.

This goes to show the separation that truly exists between Ripple the company and XRP the virtual asset. For the latter, Ripple is a proof of concept. By a “direct route” we see no connection between Ripple going public and XRP’s market price.

Programmatic Sales

Ripple owns 60% of the total XRP supply, most of which was placed into cryptographic escrow accounts to avoid uncontrollable supply hitting the markets. 1B XRP is released each month to sell to institutions. Not many people are aware that Ripple’s XRP sales are divided into two sections: “Institutional Sales” & “Programmatic Sales”.

Programmatic Sales are sold at the open market through exchanges and represent the larger portion of sales. Ripple’s intention is to affect the market as little as possible, and hence these sales are designed to only represent a small percentage of the XRP trading volume.

However, as volumes have been faked by data providers for a while now, Ripple ended up selling multiples more than they should have to the open market. The latter caught Ripple’s attention which led to a decrease in these sales as they adjusted to the real (lower) volume.

In order to endure the “big vision” startup process, Ripple requires massive amounts of funding and hence the three rounds and now the IPO. The institutional and programmatic sales assisted them further. Garlinghouse had statedWe would not be profitable or cash flow positive [without selling XRP], I think I’ve said that. We have now”.

This paired with further funding via an IPO will help Ripple financially which may further reduce the selling pressure experienced by XRP on the open markets. This indirect link, is how this Ripple IPO may positively impact XRP’s price.

Company vs Token

This IPO showcases a very important point missed by many crypto-investors. Buying the token does not equal investing in the company behind it. This misconception was created as this is a new asset class and people are only fond of equities. By going public, Ripple will stress that this is not the case. Ripple’s success as a company is naturally not the success of XRP and the opposite is also true: XRP’s success is not limited to Ripple’s success only.

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