20 December 2023
Recently, a notable observation has been the significant correlation between XRP and XLM’s price action. This phenomenon has caught the attention of industry experts and investors alike, leading to a deeper examination of the factors driving this trend.
Ripple’s Chief Technology Officer (CTO), David Schwartz, has weighed in on this topic, addressing the liquidity aspects of XRP and XLM. However, despite the visible correlation, Schwartz argues that more liquidity is needed in the XRP/XLM market to cause a notable price correlation.
This statement is based on data from CoinmarketCap, which illustrates the parallel price movements of these two cryptocurrencies over the past year. Schwartz’s insights provoke a deeper analysis of the potential reasons behind the alignment in their price behaviors.
Coinmarketcap makes it easy to compare the charts of various tokens. Here’s XRP versus XLM over the past year: pic.twitter.com/qNzfIu2TTB
— David “JoelKatz” Schwartz (@JoelKatz) December 18, 2023
Unraveling The Factors Behind XRP And XLM’s Correlated Price Movements
David Schwartz has identified three key factors influencing the XRP-XLM price correlation. Firstly, he posits that the entire digital asset market is significantly interconnected.
The market is still determining cryptocurrencies’ long-term viability, so industry news tends to affect all tokens, not just specific ones. This broader market sentiment could drive the correlation observed in XRP and XLM.
Secondly, Schwartz suggests that the dominance of Bitcoin in the cryptocurrency market could play a role. Given Bitcoin’s substantial market share and its influence on liquidity within the crypto space, movements in Bitcoin’s price often result in ripple effects across other crypto, including XRP and XLM.
I think there are a variety of factors that might be at play and it’s hard to know which are real.
One thing is that all digital assets track each other significantly. I think that’s because the market is still trying to figure out if they’re going to be a thing and so industry…
— David “JoelKatz” Schwartz (@JoelKatz) December 18, 2023
The third factor revolves around the crypto community’s perception that XRP and XLM require similar market conditions to thrive. However, Schwartz noted that he is “not sure if he believes this.”
Developments within the broader crypto industry could prompt parallel reactions from users of both tokens, leading to correlated price patterns.
Diverse Perspectives: From Short-Term Volatility To Long-Term Convictions
On the other hand, Bill Morgan, a lawyer and digital asset enthusiast, brings a different viewpoint, mainly focusing on XRPL token. Addressing recent market volatility, Morgan emphasizes the importance of a long-term perspective when analyzing XRP’s price action.
Responding to crypto community concerns about XRP’s performance, especially during heightened market movements, Morgan argues that convictions about the token should go “beyond short-term price fluctuations.”
Morgan’s stance is echoed by Matt, the Moon Lambo YouTube channel host, who points out that XRP’s price drop was not as severe as some in the crypto community perceived. Matt’s analysis places XRP at a moderate position among the top 50 coins by market cap in terms of gains and losses.
This is correct but placed in the context of XRP’s price action over the last month it is not great. XRP is down over 2% over the last month. Many but not all top 50 coins are up over the last month. In that context the fall was harder comparatively than could have been expected… https://t.co/VrlD2k0mWu
— bill morgan (@Belisarius2020) December 19, 2023
However, Morgan notes that the token’s performance over the past month has been lackluster, falling by over 2% despite a market-wide rally. This observation suggests that XRP’s decline was more pronounced than that of some of its peers, warranting a closer examination of its market dynamics.
Featured image from Unsplash, Chart from TradingView