Bitcoin (BTC) has performed poorly over the past few weeks, dropping from the 2019 high of $13,880 to as low as $9,050, a loss of 35%. However, Ripple (XRP) has performed even worse, dropping 15% relative to Bitcoin (BTC) during the same period of time. 

This continues the long term trend of Ripple (XRP) losing value relative to Bitcoin (BTC). 

Since December Ripple (XRP) has lost 69% of its value relative to Bitcoin (BTC), and since the beginning of 2018 Ripple (XRP) has lost 88% of its value relative to Bitcoin (BTC). This long-term loss is likely due to Ripple’s (XRP) centralized supply. 

Unlike Bitcoin (BTC) that was distributed in a decentralized way via mining — meaning even Satoshi Nakamoto did not receive any Bitcoins (BTC) from a premine — the entire Ripple (XRP) supply of 100 billion coins was premined. Ripple Labs took 80 billion Ripple (XRP) in the beginning, Chris Larsen received 9.5 billion Ripple (XRP), Jed McCaleb received 9.5 billion Ripple (XRP), and Arthur Britto received 1 billion Ripple (XRP). 

Ripple Labs and the three Co-Founders of Ripple (XRP) have been selling their premined Ripple (XRP), as revealed by CoinMarketCap historical snapshots. When CoinMarketCap first listed Ripple (XRP) on Aug. 4, 2013, there were 7.8 billion Ripple (XRP) in circulation. By August 2014, there were 29 billion Ripple (XRP) in circulation. At the beginning of 2015, there were 31 billion Ripple (XRP) in circulation, at the beginning of 2016 there were 33.5 billion Ripple (XRP) in circulation, at the beginning of 2017 there were 36.3 billion Ripple (XRP) in circulation, at the beginning of 2018 there were 38.7 billion Ripple (XRP) in circulation, and at the beginning of 2019 there were 40.8 billion Ripple (XRP) in circulation. So far in 2019 Ripple Labs has dumped another 1.77 billion Ripple (XRP) onto the market, bringing the circulating supply up to 42.57 billion Ripple (XRP) currently (Figure 1).

 Figure 1

Ripple Labs issues quarterly reports which reveal how much money they make on dumping their premined Ripple (XRP) onto the market. In Q4 2016, the first quarterly report issued by Ripple Labs, a modest $4.6 million of Ripple (XRP) was sold. In 2017 Ripple Labs earned $160.8 million from Ripple (XRP) sales, and in 2018 this skyrocketed to $533.6 million of Ripple (XRP) sales. 

The half a billion dollars of Ripple (XRP) sales in 2018 are shocking, considering the entirety of 2018 was a severe bear market for the crypto space. It is likely that this selling pressure from Ripple Labs enhanced bearish conditions and is part of the reason that Ripple (XRP) dropped 92%, from $3.81 to $0.30, during 2018. Therefore, it is fair to speculate that heavy selling from Ripple Labs is detrimental to all other Ripple (XRP) investors and traders. 

The half a billion dollars of sales in 2018 can be thought of as a transfer of wealth from all the Ripple (XRP) traders and investors to Ripple Labs. 

In the quarterly reports Ripple Labs tries to justify its sales of Ripple (XRP) by saying these sales are generally less than 1% of total Ripple (XRP) volume. However, at this time, Ripple (XRP) daily volume generally ranges from $10 million to $100 million on each major cryptocurrency exchange. Specifically, on Bitfinex, the Ripple (XRP) daily volume is just over $10 million, so even a $10 million sell order is enough to collapse the order book on Bitfinex. 

We can think of the sales from Ripple Labs as bombs periodically being dropped on the Ripple (XRP) market. The sales cause only a bit of damage to the Ripple (XRP) each time they happen, but long term, this adds up to severe damage.

Ripple Labs has continued its sales in 2019 with another $169.4 million Ripple (XRP) sold in Q1, despite the obvious detrimental effects these sales are having on the Ripple (XRP) market. In total, since Q4 2016, Ripple Labs has sold $707.6 million worth of Ripple (XRP). 

It could be worse. One billion Ripple (XRP) is released from escrow every month, although only a fraction of this is sold. It would be catastrophic if all of it was sold every month. That being said, it is actually legal and possible for the full one billion Ripple (XRP) to be sold every month, and this poses an extreme risk for Ripple (XRP) investors.

Aside from the 1 billion Ripple (XRP) up for sale every month, the three Ripple Labs Co-Founders who received 20 billion Ripple (XRP) in the beginning also sell Ripple (XRP) persistently. Their sales are limited by legal agreements after a court battle over the matter. 

As for the future, Ripple Labs still holds 57.42 billion Ripple (XRP) according to CoinMarketCap data. Messari Research found that there may be even more Ripple (XRP) than this that isn’t truly in circulation yet, including 6.7 billion Ripple (XRP) held by Jed McCaleb, 5.9 billion Ripple (XRP) held by Chris Larsen that is supposed to be given to charity, 2.5 billion Ripple (XRP) held by RippleWorks, and 4.1 billion Ripple (XRP) that was sold by XRP II that may be subject to selling restrictions. This amounts to 19.2 billion Ripple (XRP) that will likely be sold long term on top of the 57.42 billion Ripple (XRP) that Ripple Labs plans on selling long term. 

So it’s clear that Ripple (XRP) is a prime example of the failure of supply centralization. Market data shows that Ripple (XRP) is persistently losing value long term relative to Bitcoin (BTC) — to the tune of 88% since the beginning of 2018 — and this is partially due to Ripple Labs and the three co-founders constantly dumping Ripple (XRP) onto the market. Considering the tens of billions of Ripple (XRP) yet to be dumped, it seems likely that Ripple (XRP) will continue losing value relative to Bitcoin (BTC) long term.

Ultimately, Ripple (XRP) is extremely lucrative for Ripple Labs and the three Co-Founders but a bad deal for all the regular traders and investors who buy Ripple (XRP). It’s important to note here that Bitcoin (BTC) is decentralized and has none of the supply centralization problems that Ripple (XRP) has.