What Caused the Massive Plunge Ripple's XRP Took Yesterday?

Ripple (XRP) sailed past Ethereum last week to become the world's second largest cryptocurrency. But yesterday it took a massive plunge, dropping $20 billion almost instantly.

What Caused the Massive Plunge Ripple's XRP Took Yesterday?

Like many cryptocurrencies, XRP has been experiencing extremely volatile highs and lows this past month. On January 4, 2018, XRP reached a peak market cap of $147 billion on CoinMarketCap, making it the second largest cryptocurrency on the market. Today, XRP's market cap is at a cool $91 billion. So what caused the value of the currency to deflate by $60 billion in one week? Well, on January 8, the total value of the currency fell by $20 billion in about five minutes.

What Caused the Massive Plunge Ripple's XRP Took Yesterday?
Source: CoinMarketCap

Anyone invested in XRP watching CoinMarketCap diligently probably had a small panic attack when they saw this sudden deflation. Shelves like this will always cause panic selling -- owners who don't want to be left "holding the bag" if the currency deflates further. Panic sales don't usually try to get the maximum market value for their trade, and the value goes down. This is exactly the same premise that governs real market crashes. The difference here is that cryptocurrency markets don't have seat belts and safety nets the way fiat currency markets do.

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So, as you can see on the chart, after the staggering plunge from $120 billion to $103 billion, the market then ate it a short while later, dropping the value to a daily low of $80 billion. And while cryptocurrency markets don't have regulations surrounding market runs and mass exodus, the collective group of investors has learned from the follies of market's past and held on while the currency restabilized. As of right now, the market cap has floated back up to $91 billion.

What happened?

Most people reading about cryptocurrencies -- and markets in general, for that matter -- see numbers like $147 billion next to a phrase like "market cap" and believe those numbers to be some kind of objective evaluation of the commodities worth. However, that is strictly not the case. CoinMarketBase showed a massive plunge in the value of XRP because the website decided to remove Korean prices from the average. Because Korean exchange prices were much higher than the rest, the apparent value of XRP tanked.

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But that's all that changed. The apparent value, on CoinMarketCap. 

Panic sellers that attempt to sell at low market value will find buyers at a low market value, while buyers (especially those in Korea) with a lot of faith in the strength of the currency will continue to buy at the confidence level. This should be considered a minor setback for the cryptocurrency even though it looks like a very serious one.

While CoinMarketCap currently has XRP at $91 billion, Live Coin Watch values it at $114 billion, barely below the second largest cryptocurrency, ETH ($123 billion.)

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