What is XRP and why is the price dropping?

THE value of crypto XRP has dropped over the past seven days, down 14.87% since this time last week.

We explain what you need to know about the cryptocurrency, and why its price is falling at the moment.

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Before investing in any cryptocurrency, you should be aware of all the risks involved.

Cryptocurrencies are highly volatile, which means your investments can go up or down quickly, often losing substantial value in short periods of time.

This means you should never invest anything you can't afford to lose.

Investing in cryptocurrencies or stocks and shares is not a guaranteed way to make money.

5 risks of crypto investments

THE Financial Conduct Authority (FCA) has warned people about the risks of investing in cryptocurrencies.

  • Consumer protection: Some investments advertising high returns based on cryptoassets may not be subject to regulation beyond anti-money laundering requirements. 
  • Price volatility: Significant price volatility in cryptoassets, combined with the inherent difficulties of valuing cryptoassets reliably, places consumers at a high risk of losses.
  • Product complexity: The complexity of some products and services relating to cryptoassets can make it hard for consumers to understand the risks. There is no guarantee that cryptoassets can be converted back into cash. Converting a cryptoasset back to cash depends on demand and supply existing in the market. 
  • Charges and fees: Consumers should consider the impact of fees and charges on their investment which may be more than those for regulated investment products.  
  • Marketing materials: Firms may overstate the returns of products or understate the risks involved.

What is XRP?

XRP is form of digital currency that can be used on the Ripple network.

It can either be transferred between individuals or banks.

For example, if you need to send Euros to someone who uses Dollars, the Ripple network would convert this into XRP.

XRP is a coin, while Ripple is a network that allows the transfer of money.

The founders of Ripple created XPR before the company Ripple existed. 

Ripple was originally founded in California in September 2012 as Newcoin, Inc. before renaming itself Opencoin, Inc. the month after.

In 2013, Opencoin Inc. was renamed Ripple Labs Inc., which was reincorporated as a Delaware corporation in 2014.

XRP has been used as a method of currency transfer through the network since 2012.

At the time of writing, one XRP coin is worth around $0.87, according to CoinMarketCap.

This is higher than its $0.66 value in February, but still way off its all-time high of $3.29, which it hit on January 4, 2018.

One of the main differences between XRP and Bitcoin is that a set number of XRP coins have been produced, while new Bitcoin can be created.

In total, there are around 100billion XRP coins, although not all of these are in circulation. 

It’s thought up to one billion XRP coins are released each month, while Ripple owns a backlog of 55billion coins in case of market volatility.

Another difference is that Bitcoin transaction confirmations can take minutes, while XRP transactions take seconds.

Why has the price of XRP fallen?

Most of the well-known cryptocurrencies have fallen over the past week, and XRP is no exception.

It's not clear exactly what has caused the current slump, but cryptocurrencies markets have generally dropped since China signalled a crypto crackdown last month.

China has banned financial institutions from offering crypto related transactions, and warned investors against speculative trading in them.

There was further agitation in the marker as a couple of weeks ago, Mr Musk announced Tesla would no longer accept Bitcoin payments to buy cars.

He cited the harmful effects to the environment that comes with mining the cryptocurrency, which is a hugely energy-intensive process.

XRP's value was likely pushed higher earlier this year as traders called for investors to "pump and dump" the digital tokens via Telegram, according to CoinDesk.

It appears to be an attempt to mirror the recent price surge in heavily shorted companies like GameStop and crypto Dodgecoin.

In simple terms, "short selling" is when professional investors borrow shares of stock to sell, and then buy them back at a lower price.

Essentially, when investors are doing this they are betting that the stocks will drop in value so they can pocket the profit when they hand them back to the company they borrowed them from.

They rely on the company failing, making it a risky way of raising cash – any positive news could see shares rise and cause them to make a loss.

How risky is XRP?

Investing is always a risk but investing in cryptocurrency is an even higher risk as they are VERY volatile, so you should be prepared to lose your money.

Another risk is that there is no guarantee you can convert cryptoassests back into cash, as it may depend on the demand and supply in the existing market. 

It's also worth noting that fees and charges may be higher than with investment products. 

Cryptocurrency firms aren't regulated in the way that other financial firms are. This means that you won't have any protection if things go wrong.

Firms offering other cryptoassets must now be registered with the FCA , and anyone who does put in cash should check before investing.

It comes as Brits have been banned from buying "harmful" types of cryptocurrency investment in the UK.

How risky is Dogecoin? The dangers of buying cryptocurrency on apps like Robinhood.

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