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David Schwartz, the Chief Technology Officer (CTO) at Ripple, recently attempted to explain the reason behind the interesting correlation between the prices of XRP and XLM.
Schwartz’s explanation came amid an extensive discussion around the impact of Ripple’s sales on XRP’s price dynamics.
Recall that the XRP community recently reignited these discussions as past internal conversations on Ripple’s programmatic sales of XRP took the spotlight.
Ripple Beckoned to Burn Monthly Escrow Releases
The Ripple CTO has dedicated some time to debunk these claims, stressing that the firm already stopped programmatic sales in 2020.
However, concerns of Ripple’s monthly escrow releases emerged, with some voices reiterating that the company should burn unlocked tokens not utilized every month.
Schwartz emphasized that burning these tokens would not have any substantial impact on XRP’s price. He cited Stellar’s history, when the Stellar Development Foundation incinerated half of XLM’s supply, amounting to 50 billion tokens, in November 2019.
If you're thinking that will have some positive impact on the price, I don't think there's any reason to believe that. Stellar's burn had no real effect and XRP's price tracked XLM's through their burn. So what would the benefit of doing that be?
— David "JoelKatz" Schwartz (@JoelKatz) February 19, 2024
According to David Schwartz, following this monumental burn, XLM’s price did not record any significant uptrend. Instead, XLM continued to move along with XRP’s price, a pattern that began in the past and was sustained despite the XLM burn. The token dropped with XRP and also surged with XRP.
Possible Explanations to XRP and XLM Price Correlation
This disclosure from Schwartz triggered another round of inquiries, as community members sought to understand the reason behind the strange correlation between XLM’s price movements and XRP’s price.
The Ripple CTO stressed that he does not have any proof that there is a logical explanation behind the price correlation. However, he presented a few possible reasons.
According to him, one possible explanation is that the factors driving the price of XRP could be factors outside the XRP ecosystem that affect both XRP and XLM. Schwartz suggested this theory that XRP’s price is driven by external factors in a previous disclosure.
I can't prove that there's any particular explanation. But I think it's because the primary drivers of the price of XRP come from factors external to the XRP ecosystem and common to XRP and XLM.
I'll give two alternative explanations that I don't believe are correct, but that…
— David "JoelKatz" Schwartz (@JoelKatz) February 19, 2024
He further explored two possible reasons behind the price correlation, but stressed that they may actually be wrong. One of them is that the market sees XRP and XLM comparable. However, as XRP is bigger than XLM, its price movements tend to drag XLM’s price due to this perceived comparability.
Schwartz said the second possible explanation is that there is someone or a group of people that are either manipulating the price of XRP or the price of XLM to ensure that both assets move alongside each other in an attempt to uphold a conspiracy.