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…
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