Ripple’s $500m surge, XRP’s spiking velocity: A double-edged sword for crypto’s future

In early December, the XRP Ledger’s velocity metric spiked to a yearly high, indicating a surge in the circulation of XRP coins across the network. This increase in activity coincided with a rebound in XRP’s price, suggesting heightened participation from both retail traders and large investors.

XRP’s velocity typically correlates with more spot trading and on-demand liquidity (ODL) usage, Ripple’s cross-border payment solution. Some analysts suggest that XRP could see a 16% price rally based on current network patterns, although market conditions remain volatile.

This uptick in XRP activity comes amid significant developments within Ripple, the company behind the XRP token. In November, Ripple raised $500 million through a share sale, drawing backing from some of Wall Street’s biggest names, including Citadel Securities and Fortress Investment Group.

The deal, which valued Ripple at $40 billion, highlights the growing acceptance of crypto within traditional finance, though it also reflects the cautious approach institutional investors are taking in a volatile sector. The structure of the deal provided several safeguards for investors, such as the option to sell shares back to Ripple at a guaranteed return, and preferential treatment in case of a major event like a sale or bankruptcy.

Despite the recent volatility in the crypto market, Ripple’s valuation is still heavily tied to its XRP holdings. Two of the funds investing in Ripple assessed that at least 90% of the company’s net asset value comes from XRP, Bloomberg News reports.

As of July, Ripple held $124 billion worth of XRP, much of which is subject to lockups and gradual release. Although XRP has fallen by more than 40% since mid-July, the company’s strong backing and strategic acquisitions—such as its $1.25 billion purchase of prime brokerage Hidden Road—underscore Ripple’s broader ambitions beyond its crypto token.

TradFi Adjusts To Risk

The structure of Ripple’s investment deal also illustrates how traditional finance is adjusting to the risks of the crypto world. Terms like the put option with a guaranteed return are uncommon in high-growth ventures but reflect the uncertainty in the volatile digital asset space.

Even with XRP’s price decline, Ripple’s substantial holdings in the token remain a key factor in its valuation. However, with Ripple diversifying its business, the relevance of XRP to its overall valuation could decrease over time. This dynamic, combined with increased activity in the XRP network, signals that the relationship between Ripple and its native token remains a central focus in the evolving crypto landscape.