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Why would Ripple allow such crazy volatility?

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7 hours ago, Spekul8 said:

The daily price volatility and the daily direction is up to the MARKET, not XRP.  Just like a company that is publicly traded does not control the direction of it's stock day to day, the same logic applies to companies who have cryptocurrencies.  if a company could control the direction of the stock or its currency, it would be called Manipulation. 

Central banks the world over do this to their national currencies on a daily basis, to a certain degree. While I am against it in principal, it is not necessarily a bad thing. I suppose though that depends where you're sitting when the currency 'adjustments' happen.

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10 hours ago, Xrpmonster said:

Here's what I don't get about all this. I'm loving the price spike. But why on earth would Ripple allow this kind of volatility? Banks aren't going to be comfortable trusting XRP if it does 20x in a month, that just doesn't make any sense. Surely Ripple will do everything possible to keep the currency entirely stable? And that means the fundamentals are totally against XRP going to $2—5 as everyone is hoping for. 

For the role XRP has to play as a bridge, volatility shouldn't be a problem. The most to fear problem should rather be low liquidity and high spreads. Even in a highe volatile market, bridging over XRP in  seconds, there will not be so much of a problem. I think that how it now goes when one pays 1M USD for a Japanese service to become converted in JPY over an elapsed time running close to a week using SWIFT, there's WAY MORE unexpected swing in forex rates. That 1M USD over a week can even become 50K less or more.

In this weeks example - the loss on 1M over a "SWIFT" week could have been 27K for the very "stable" USD/EUR pair...

Going instant over XRP, even with todays volatility,  in those 5 to 10 seconds I do not see that sort of differences in rates. It will be way more WYSIWYG with Ripple.... even with XRP dancing between 0.1$ and 10$... The dancing moves will never be THAT fast :) 

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Edited by kanaas

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15 minutes ago, kanaas said:

Going instant over XRP, even with todays volatility,  in those 5 to 10 seconds I do not see that sort of differences in rates. It will be way more WYSIWYG with Ripple.... even with XRP dancing between 0.1$ and 10$... The dancing moves will never be THAT fast :) 

It's not a matter of those 5-10 seconds. The problem is that Market Makers have to hold always XRP. And they make a gain when they "close the loop", i.e. they buy and sell XRP. If closing the loop take some time (because of low volumes) the price in the meanwhile can change, and it involves not a single transaction, but multiple so it is not 5-10 seconds. Moreover holding volatile XRP is a risk itself. Why would a MM buy (and keep) 1M USD worth of XRP to use it as bridge if the day after it can be valued 30% less and its gain from market making is only 0.5%?

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Just now, tulo said:

Why would a MM buy (and keep) 1M USD worth of XRP to use it as bridge if the day after it can be valued 30% less and its gain from market making is only 0.5%?

Other things being equal, the more you can rely on the price of XRP to be unlikely to drop significantly in a short time, the better. However, good liquidity is much more important than low volatility. You can hedge against volatility. With low liquidity, you can't make a large volume of payment value work at all.

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5 minutes ago, tulo said:

It's not a matter of those 5-10 seconds. The problem is that Market Makers have to hold always XRP. And they make a gain when they "close the loop", i.e. they buy and sell XRP. If closing the loop take some time (because of low volumes) the price in the meanwhile can change, and it involves not a single transaction, but multiple so it is not 5-10 seconds. Moreover holding volatile XRP is a risk itself. Why would a MM buy (and keep) 1M USD worth of XRP to use it as bridge if the day after it can be valued 30% less and its gain from market making is only 0.5%?

Because a) they make money from each transaction and b ) by Facilitating exchanges of xrp in this way they are helping to build the ecosystem and the utilisation of XRP, which improves its demand and thus the value in the long-term has a higher likelihood of appreciating. That makes the risks moire palatable.

Edited by will4star

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8 minutes ago, tulo said:

It's not a matter of those 5-10 seconds. The problem is that Market Makers have to hold always XRP. And they make a gain when they "close the loop", i.e. they buy and sell XRP. If closing the loop take some time (because of low volumes) the price in the meanwhile can change, and it involves not a single transaction, but multiple so it is not 5-10 seconds. Moreover holding volatile XRP is a risk itself. Why would a MM buy (and keep) 1M USD worth of XRP to use it as bridge if the day after it can be valued 30% less and its gain from market making is only 0.5%?

MM's live on swings and volatility. They do not see it as a risk, rather as an opportunity.  Even on a bear market, with the right moves one can still make a profit. MM's are champions in making those right moves.

Edited by kanaas

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1 minute ago, JoelKatz said:

Other things being equal, the more you can rely on the price of XRP to be unlikely to drop significantly in a short time, the better. However, good liquidity is much more important than low volatility. You can hedge against volatility. With low liquidity, you can't make a large volume of payment value work at all.

Yeah, completely agree, but if the volatility is 15-30% as it is now, then none will take the risk. I agree that the more volume, the more use cases the less volatility, but we don't have any numbers yet. Actually the price was much more stable when the volume was 100 times less 2 months ago.

Also if XRP is used in ILP, there will be much more markets than standard forex (because every ledger/bank is like a different currency). What's the plan to keep high the volumes since the pairs will be really a lot and we can't expect big volumes for small banks/businesses for example?

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1 minute ago, kanaas said:

 

MM's live on swings and volatility. They do not see it as a risk, rather as an opportunity.  Even on a bear markt, with the right move one can still make a profit. MM's are champions in making those right moves.

Nope, MMs live on stable prices and high volumes. Traders live on swings and volatility.

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25 minutes ago, tulo said:

What's the plan to keep high the volumes since the pairs will be really a lot and we can't expect big volumes for small banks/businesses for example?

Might be wrong, but I expect some sort of adaption of the correspondent banking model. Correspondent banks will transform to "trusted issuer banks" and serving as trusted issuers for partner banks. With the ease to step up as "trusted issuer bank" (even Gatehub is one)  the landscape of course will be much more diverse compared to the very few correspondents now and with more competition on the fees as a result. Actually, I guess that the plans on the SBI group might go into that direction: one trusted issuer for a group of banks. Guess their initiative might become the new business model for Xborder payments and trading.

Edited by kanaas

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3 hours ago, will4star said:

Central banks the world over do this to their national currencies on a daily basis, to a certain degree. While I am against it in principal, it is not necessarily a bad thing. I suppose though that depends where you're sitting when the currency 'adjustments' happen.

Gov do not intervene on a daily basis. Periodically, when a currency gets too weak or too strong and it is against the interest of the country (depending on whether it is net exporter or importer) governments will purchase or sell the currency in the attempt to change direction.  As an FYI, these interventions are short lived and rarely have influence long term.  

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14 hours ago, Xrpmonster said:

Here's what I don't get about all this. I'm loving the price spike. But why on earth would Ripple allow this kind of volatility? Banks aren't going to be comfortable trusting XRP if it does 20x in a month, that just doesn't make any sense. Surely Ripple will do everything possible to keep the currency entirely stable? And that means the fundamentals are totally against XRP going to $2—5 as everyone is hoping for. 

I would put this down to a break out. XRP needs to flex and show off to perform and gain popularity and acceptance. 

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23 minutes ago, Spekul8 said:

Gov do not intervene on a daily basis. Periodically, when a currency gets too weak or too strong and it is against the interest of the country (depending on whether it is net exporter or importer) governments will purchase or sell the currency in the attempt to change direction.  As an FYI, these interventions are short lived and rarely have influence long term.  

No, you're right. It was an exaggeration to say 'daily'. I agree with everything you've said.

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