XRP and Stellar (XLM) price movements have long been intertwined, and this has not always thrilled investors, with some going as far as expressing frustration. Why do these seemingly distinct digital assets follow each other so closely? While various theories propose correlation, Ripple Chief Technology Officer (CTO) David Schwartz offers a different perspective.
The Crypto Market’s Coca-Cola and Pepsi
Schwartz emphasized that token prices, including XRP and XLM, are primarily driven by rational market forces. He stated, “Prices are mostly rational. Everything expected is already baked into the price.” He also pointed out that big changes that were not “obviously good” would always be treated as bad changes by the market.
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He likened the interconnectedness of digital asset prices to traditional markets, where stocks like Coke and Pepsi often move in tandem due to shared market perceptions.
This is not the first time this comparison has been made, as a Ripple executive who was kept anonymous recently called XRP and XLM the Coca-Cola and Pepsi of Central Bank Utility because of the similar roles they play.
Although these two seem eerily interconnected, the broader digital asset space also experiences similar collective shifts, with individual currencies like XRP and XLM often riding the same wave, albeit with varying intensities.
However, the extent of XRP’s lagging behind the broader market compared to XLM raises valid concerns. As user VanHasen (@hansen_van) points out, the percentage-wise movements of XRP in pairs like XRP/BTC can lag significantly. VanHansen pointed out that XRP and XLM were only correlated time-wise, with XRP not performing as expected.
Schwartz’s Explanation
Schwartz acknowledges the frustration but offers an alternative explanation rooted in investor behavior. He suggests that XRP and XLM are often mentally grouped by investors due to their shared history, intertwined ecosystems, and overlapping user bases.
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This mental grouping leads to similar investment decisions impacting both assets, perpetuating the observed correlation. Additionally, the presence of crossover investors who hold both XRP and XLM further strengthens the link.
So, is there a grand conspiracy manipulating the prices of XRP and XLM? From Schwartz’s explanation, the correlation is the result of a combination of market forces, investor psychology, and shared ecosystems, rather than intervention from unknown figures driving the price.
However, Schwartz admitted that he does not have an explanation for the exact mechanisms driving the XRP-XLM price correlation.
Interestingly, this discussion is not the first of its kind for Schwartz as he recently described similar trajectories as a self-fulfilling prophecy.
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