Intriguing XRP and Stellar (XLM) Correlation Deciphered, Here’s Explanation
The cryptocurrency market has long been intrigued by the price correlation between XRP, the native cryptocurrency of the Ripple network, and Stellar (XLM), the digital currency of the Stellar network. Both cryptocurrencies have shown a strikingly similar pattern in their price movements, leading investors and analysts to speculate about the reasons behind this correlation.
Insights from Ripple’s CTO
David Schwartz, the Chief Technology Officer of Ripple and one of the original architects of the XRP Ledger, has offered his perspective on this phenomenon. Schwartz suggests that the correlation may be due to the fact that “people put XRP and XLM in the same mental bucket due to their histories, and so factors that affect one are especially expected to affect the other”. He notes that the same individuals are likely to buy and sell both cryptocurrencies, which could contribute to their synchronized price movements.
I don't think anyone really knows. But whatever the explanation, it has to be something that affects XRP and XLM almost equally. pic.twitter.com/tmqWLrfCi5
— David "JoelKatz" Schwartz (@JoelKatz) January 8, 2024
Market Dynamics and Historical Ties
The correlation coefficient between XRP and XLM has been reported to be as high as 0.95, indicating that they move in near-perfect tandem. This strong correlation is not entirely surprising given that both XRP and XLM are designed to facilitate fast and low-cost cross-border payments, leveraging blockchain technology and innovative consensus mechanisms.
Moreover, the shared history between the two digital assets cannot be ignored. Stellar was founded by Jed McCaleb, who also co-founded Ripple. This connection has often been cited as a potential reason for the observed price synchronization.
Recent Market Observations
Recent market events have highlighted the correlation between XRP and XLM. For instance, a false report about a BlackRock XRP ETF filing led to a temporary surge in Ripple’s price, which was closely mirrored by Stellar’s price. Additionally, legal developments concerning XRP have also impacted XLM’s market performance, as seen when XLM benefited from a favorable ruling for XRP.
The Complexity of Correlation
Despite the clear correlation, the exact reasons behind the synchronized price movements of XRP and XLM remain complex and multifaceted. Schwartz himself acknowledges that it is challenging to pinpoint a single factor as the definitive cause of such trends. The cryptocurrency market is still maturing, and investors are continually adjusting their understanding and valuation of digital assets.
The correlation can also affect investor behavior. Since the same individuals are likely to buy and sell both cryptocurrencies, synchronized price movements can lead to similar investment strategies. This can result in increased market volatility and risk, but also potential opportunities for profit.
While the precise explanation for the XRP and XLM correlation is still up for debate, the combination of shared history, market dynamics, and investor behavior appears to play a significant role. As the cryptocurrency market evolves, it will be interesting to observe whether this correlation persists or if the two digital assets will eventually chart more independent courses.
Angel Marinov is the Managing Editor at Coinlabz. With extensive knowledge of crypto payments and blockchain use cases, Angel is a trusted source of accurate and timely information