Analyst Calls Ripple a Pump and Dump Scheme, Analyzes XRP as a Cryptocurrency Scam
A few days ago, a leading IT industry analyst Jason Bloomberg, released a piece related to JP Morgan’s virtual currency, the JPM Coin. In this article he suggested that there are some indications that Ripple could be a scam.
Ripple is a crypto-related company that is working in order to offer services for firms to send and receive cross-border payments in an easy way using the XRP digital asset.
After writing this article, he said that he realized that several crypto news sites started to write about his comments regarding Ripple. Due to this situation, he decided to investigate even further about the XRP digital asset and Ripple.
Bloomberg says that Ripple has a pump and dump business model that aims at increasing the value of the XRP virtual currency. Nevertheless, he said that the company takes numerous steps in order to hide these activities.
The analyst says that Ripple issued XRP tokens that are worthless and gifted billions of them to the founder of the company. After it, these founders perform two activities, they promote fiction of independence or pump the coins. If they start promoting their independence, they are ultimately pumping XRP.
Once they start with this pump & dump scheme, they pay partners to sign up, deliver questionable technology and manipulate the public opinion. This is what Mr. Bloomberg believes is Ripple’s business model.
Ryan Zagone, director of regulatory relations for Ripple, said that CRP is open source and Ripple did not create it. He mentioned that the digital asset existed before as an open source technology.
Although XRP can be considered a virtual currency, it is centralized, because the company can decide who is able to process XRP transactions. Bloomberg says that the community believes that XRP is centralized and that it shouldn’t be considered a cryptocurrency at all.
The analyst explains that Ripple pays companies to become partners using the RippleNet Accelerator Program. Ripple wrote about it:
“Starting [October 13, 2017], Ripple will offer a unique reward for financial institutions that are the first in their markets to process and promote commercial payments on RippleNet.”
The funds for this accelerator program come from the funds that Ripple has as holdings. Bloomberg says that Ripple is using its free XRP holdings to build the illusion it has paying customers.
The author of the article says that Ripple is trying to offer XRP as an intermediate currency in order for banks and other financial institutions to process cross border payments in a fast and less costly way. However, Bloomberg says that there are some issues with this approach.
The first problem is that XRP is a volatile cryptocurrency. Martin Walker, the director for banking and finance at the Center for Evidence-Based Management, explained that there must be someone providing the liquidity for a client to use XRP. Holding XRP, which is a volatile digital currency, is not credible.
Nonetheless, banks are going t be holding the digital asset for just for a few seconds or minutes. It will not be necessary for companies to hold XRP for prolonged periods of time. Ripple indeed explains that fiat currency transactions are subject to a larger fluctuation since the institution must hold the asset for a long period of time until the transaction is fully processed.
During the last months, XRP has been moving in the market in different directions. Thus, the analyst believes that the digital asset is not going to be useful for these institutions.
The second problem is that not all fiat currencies will have enough liquidity to purchase or buy the XRPs needed to perform a transaction. There are some countries with their own fiat currency that might not have a market for XRP.
Another issue that has been affecting the third largest digital asset is related to its legal status in the United States. Regulatory agencies in the country have not given a public opinion about XRP and whether it is considered a security or not. Bitcoin (BTC) and Ethereum (ETH) have already been considered not securities.
Brad Garlinghouse commented about XRP being considered a security:
“XRP is not a security for three reasons: if Ripple, the company, shuts down tomorrow, the XRP ledger will continue to operate; it’s an open-source, decentralized technology.”
He went on saying that those that purchase XRP are not buying shares of Ripple’s company. Thus, XRP buyers are not receiving any ownership rights over Ripple.
Bloomberg said that those assets that are purchased for individuals and expect a price increase in the future are just simply speculating. Moreover, this shows that XRP is a security.
Another question that the author of the article asks readers is related to Ripple’s technology and whether it works or not. He said that PayPal has paid early partners to try the technology out, similar to what Ripple is currently doing. However, it remains to be seen whether Ripple is going to be offering similar services to Swift or PayPal, or it will just disappear as a project.
There are different companies that have already implemented Ripple’s services, including Santander Bank. The product released by Santander didn’t deliver the products promised. The official site of Santander explains that in the case of transfer between accounts of the bank to the United Kingdom, they will be processed immediately.
Ripple is also working with Western Union, says Bloomberg. The company is one of the main players in the transfer industry. Hikmet Ersek, the CEO of Western Union, said:
“We are always criticized that Western Union is not cost-efficient, blah blah blah, but we did not see that part of the efficiency yet during our tests [of Ripple]. The practical matter it’s still too expensive.”
The analyst explains that Ripple’s only way to make money is by pumping their all coin in the market. The company holds $60 billion XRP with a notion value of around $10 billion. With these pump and dump schemes, the value of the asset is modified.
XRP has been accepted in Binance as a base pair against other digital currencies. The digital asset has also been added to Coinbase and Coinbase Pro. This will clearly increase the demand for the digital asset.
At the time of writing this article, XRP is the third most valuable virtual currency in the market. According to CoinMarketCap, XRP has a market capitalization of $13.29 billion and each XRP coin can be purchased for $0.321. XRP is only surpassed by Bitcoin and Ethereum. In the future, new partnerships might take place and include XRP.