Ripple CTO David Schwartz recently explained why XRP and Stellar (XLM) prices have moved in the same direction for years, as the phenomenon continues to baffle market watchers.
Schwartz shared his thoughts on X in response to a remark from an XRP community figure, Mr. Huber. The individual initially aimed to dispel claims that Ripple’s monthly XRP escrow releases were putting pressure on XRP and stopping substantial price surges.
To debunk these claims, Mr. Huber highlighted that XLM’s price movements are similar to XRP’s. ‘How exactly do the “Ripple dumping” people explain XLMs performance?’ he asked. The Ripple CTO then shared a chart tracking XRP’s and XLM’s performances to add context to Mr. Huber’s argument.
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
Possible Reasons Behind XRP/XLM Correlation
An XRP community figure sought to know why both assets have continued to mirror each other’s movements. In response, Schwartz shared his perspectives on the various factors that could influence this price action sync.
He acknowledged the complexity of the situation, expressing that multiple factors are at play, making it challenging to pinpoint the real drivers behind the correlation.
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
According to him, digital assets generally exhibit a significant correlation. He attributed this phenomenon to the ongoing effort of the market to determine the future role of these tokens amidst evolving industry developments.
Schwartz further highlighted the interconnected nature of the broader crypto market. This sensitivity to industry developments creates a scenario where changes in one asset can trigger a ripple effect across the market.
While there is speculation about the correlation being linked to all tokens following Bitcoin due to liquidity considerations, Schwartz does not believe this.
He cast doubt on the idea that Bitcoin’s movements alone dictate the fate of all other assets, suggesting a lack of compelling reasons for these assets to mimic Bitcoin’s trajectory.
Similar Sentiments or Algorithms?
Schwartz proposed an interesting perspective. He suggested that the XRP/XLM correlation could be partly due to market participants seeing these assets as requiring similar conditions to succeed or fail.
This perception contributes to a strengthened correlation between XRP and XLM, as the sentiments surrounding one of them spill into the other. The trend translates to similar market participants in both markets, similar investments, and equally similar market trends.
Some community members suggested that the price correlation could come from an algorithm native to XLM that allows it to follow XRP’s price. Responding to this, Schwartz argued that while there are other logical explanations, he finds them hard to believe, dismissing the idea of manipulation.
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