THE value of crypto XRP has dropped following rises earlier this year.
We explain what you need to know about the cryptocurrency, and why its price has fallen.
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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 cash can go down as well as up.
This means you’ll need to be prepared to lose any cash you invest.
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.
The key difference between the two is that 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.
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At the time of writing, one XRP coin is worth around $1.13, 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 did the price of XRP go down?
XRP is currently down by 3% over the last 24 hours, according to CoinMarketCap.
Cryptocurrencies markets have generally dived in value recently following comments made by Tesla boss Elon Musk and a crackdown in China.
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.
While China has banned financial institutions from offering crypto related transactions, and warned investors against speculative trading in them.
It comes after 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 cash.
There is also no guarantee that you can convert cryptoassests back into cash, as it may depend on the demand and supply in the existing market.
Plus, fees and charges may be higher than with regulated 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.
As always, never invest in something you don’t understand.
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