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The XRP/GBP pair offers pound sterling-denominated exposure to XRP by Ripple Labs, the cryptocurrency that powers the Ripple payment settlement system, currency exchange and remittance network. XRP and Ripple differ from most other major cryptocurrencies in a couple of important ways. While Ripple is a blockchain and so, by default, a decentralised system, it is much more ‘centralised’ than other major cryptocurrencies and blockchain applications.
Ripple was launched and is still run by a single company, Ripple Labs, rather than a developer community as is the case with Bitcoin and Ethereum. There is also no ‘mining’ involved. The blockchain was launched with all 100 billion XRP currency units already in existence. This allows for XRP transfers to be effective immediately, without the need for the mining process to provide confirmation – considered key to Ripple’s utility in facilitating financial transactions.
The majority of XRP coins are still also owned by Ripple Labs with the company gradually selling them off as it requires to raise finance for new projects or acquisitions. Perhaps most crucially, while the core principle of other cryptocurrencies is to separate financial transactions from traditional financial services companies and central authorities, Ripple seeks to leverage blockchain technology to improve bank-based and other financial transactions. Major banks and other financial services institutions are also backing Ripple and Santander, UBS and American Express are just some of those who have involvement in the operation and proliferation of Ripple and XRP.
Sterling-denominated trade: XRP/GBP is a pair that will most appeal to traders with GBP-based accounts. Like other cryptocurrencies, the exchange value of XRP is still many times more volatile than for any major fiat currency. Volatility is, on average, at least ten times higher. Within this context, it is the XRP side of any XRP/fiat trading pair that is important. Trading XRP GBP makes things simpler for traders with GBP as the base currency of their accounts and negates the need first to pay a spread on converting GBP into USD.
Cryptocurrency Volatility: most traders taking cryptocurrency to fiat positions, rather than pairs containing two cryptocurrencies, do so as a way to gain exposure to the relative volatility of cryptocurrencies compared to fiat markets. Major fiat currencies such as GBP, USD, EUR or JPY have average daily volatility levels of somewhere around 0.5%. The average daily volatility of the major cryptocurrencies is usually over 5%, and that is much lower than has been the case in the past.
As such, crypto to fiat pairings such as XRP GBP are a very effective way for experienced traders to take advantage of the much larger average pip swings than typically the case with traditional fiat currency pairs. Longer term price swings are also much more significant, and over weeks or months, it’s not unusual for XRP and other cryptocurrencies to gain or lose hundreds of percentage points. Of course, as the cryptocurrency market matures this volatility is not expected to remain at similar levels longer term. For many traders, all the more reason to take advantage now, while being aware that the potential for significant pips gains inevitably means significant losses can also be incurred if on the wrong side of a trade.
Belief in XRP and Ripple: traders who have more in-depth knowledge of the cryptocurrency market and an opinion on the future prospects of individual cryptocurrencies might take a longer-term position on a pair such as XRP GBP. Cryptocurrency volatility means that any long-term position should not involve leverage, or at least very low levels. And with the levels of volatility the market has seen over the past few years, leverage isn’t necessary for big pips swings to be logged, especially over the longer term.
Using a CFDs position such as XRP/GBP also allows a trader to take a short position against a cryptocurrency such as XRP, particularly if they are sceptical over the long-term prospects of the Ripple platform.
The obvious answer that the Ripple platform is gaining traction and being used to process more currency transfers and transactions, or the inverse, would be expected to be the main driver of XRPGBP’s price direction. However, the practical evidence suggests that, at least for now, this is not the case. Throughout the first several months of 2018, Ripple signed numerous new partnership agreements with banks and other financial services companies to start using the platform. Over the same period the exchange value of XRP, which should theoretically be in more demand, has massively dropped.
That’s because XRP, the cryptocurrency, is not the same as the Ripple platform. The Ripple blockchain platform can be used to transfer any digital asset. This could mean fiat currencies such as GBP or USD in electronic form (i.e. not cash), cryptocurrencies and other kinds of digital assets. Using XRP reduces the cost of these transfers, by over 20%, but is not a necessity. Because cryptocurrency prices have been so volatile, always but especially over the past year or so, it is understandable that companies using the Ripple platform often prefer not to use XRP as the medium of exchange for now. So there is, counterintuitively, less of a direct link between the demand for XRP and use of the Ripple platform than most presume.
Of course, longer term, the success Ripple is having in establishing partnerships and proliferating the use of their platform would be expected to increase demand for XRP, driving up its exchange value. But in the short term, the two are not necessarily very closely correlated. Overall sentiment and trends in the wider cryptocurrency market, dominated by Bitcoin’s price movement, are for now the main driver of the XRPGBP pair.
CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 62% of retail investor accounts lose money when trading CFDs with this provider. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money.
This content is intended for information and educational purposes only and should not be considered investment advice or investment recommendation. Past performance is not an indication of future results.
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