Ripple Lacks Strong Institutional Buyers, and That’s a Problem

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Ripple’s (CCC:XRP-USD) XRP coin is currently the sixth-largest cryptocurrency according to CoinMarketCap, with a market capitalization of $43.4 billion. But while reading up on Ripple and its coin, it struck me that I had no idea about the buy-in from institutional investors. 

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While retail investors are definitely the big investing story of 2021, institutional investors remain the main market mover for U.S. stocks. That’s according to U.S. News & World Report, which suggested that retail investors accounted for 10% of the daily trading for stocks in the Russell 3000 Index. 

Average daily trading volumes in the index hit $380 billion at the end of June, with retail investors contributing $38 billion. However, in Europe, retail investors only account for 5% of Euronext’s average daily volume. 

“We find that retail investors tend to prefer companies in sectors they are likely to be familiar with as consumers, such as consumer discretionary, communication services, and technology,” Morgan Stanley wrote in a note to clients. 

Ripple and Institutional Interest

When it comes to cryptocurrencies such as XRP, I would think the 90/10 split would be reversed, with retail investors accounting for 90% of all crypto buying and selling. 

With stocks, investors are likely to feel more confident about investing if many well-known institutional managers are piling into a company. We know this to be true, or websites such as WhaleWisdom wouldn’t exist.

It would be nice to go to the Securities and Exchange Commission’s (SEC) site and look at cryptocurrencies’ institutional ownership. Alas, I can’t do that because that would defeat the so-called purpose of cryptos. I consider that a problem. 

At the end of August, institutional investors were said to own $70 billion of Bitcoin (CCC:BTC-USD), or almost 8% of its then-circulating supply. That’s very close to my 10/90 split between institutional investors and retail investors.    

Of course, that’s 8% for the world’s most valuable cryptocurrency. Down in the seventh position, I would be absolutely gobsmacked if institutions owned more than 1% of XRP. 

As I said, I have no way of finding out what the actual percentage is. The available information is merely scuttlebutt and speculation at this point. 

Interestingly, as Ripple continues its legal battle with the SEC, its lawyers have asked the courts to force the agency to reveal whether its employees were allowed to buy and sell XRP. This would be in direct contrast with the SEC’s allegation that Ripple is selling an unregistered security. 

If the motion is allowed, investors won’t get a naming of names, but rather “completely anonymized information of a narrow scope,” stated Ripple’s legal filings. 

XRP’s Institutional Backing Is Less Than 1%

While it’s not current, an April 2021 report from CoinShares suggested institutional buyers acquired $33 million of Ripple over the course of one week, bringing the total investment to $83 million. 

According to Coinshares’ latest report from Sept. 3, Ripple’s institutional ownership was $82 million, suggesting these investors have been treading water when it comes to XRP.

However, those numbers don’t break out the Ripple ownership held within multi-asset products, which accounted for $3.5 billion in assets as of Sept. 3. Most of that is likely reserved for Bitcoin and Ethereum (CCC:ETH-USD).

On Sept. 3, institutions accounted for $17.5 billion in ETH-USD. That’s 5.1% of Ethereum’s current market cap of $340 billion, up from $10.8 billion as of April 16. 

By comparison, Ripple’s institutional assets account for less than .2% of its total market cap, or virtually nil.

The Bottom Line on Ripple

When I last wrote about Ripple in July, I hinted that it could take a couple of years for XRP to get back to $3.50 per coin. To its credit, it’s risen by 63% since then, from around 57 cents to 93 cents as I write this. 

The $3.50 price I referenced was based on an FXStreet price prediction. The forecast was based on Ripple holding a key support level of 50 cents, which was true at the time. Now, it appears the new support level is around $1.07. In the past month, it’s tested $1.07 three times on the downside, bouncing off that level on all three occasions.

As tempting as it might be, I’ve committed to avoiding any crypto buys until I get a better indication of institutional interest. At this point, if you care about what institutions think, Bitcoin and Ethereum remain in a class of their own.  

On the date of publication, Will Ashworth did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.

Will Ashworth has written about investments full-time since 2008. Publications where he’s appeared include InvestorPlace, The Motley Fool Canada, Investopedia, Kiplinger, and several others in both the U.S. and Canada. He particularly enjoys creating model portfolios that stand the test of time. He lives in Halifax, Nova Scotia. 

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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