The XRP-XLM Price Correlation and the Burning Debate

A recent price phenomenon involving Ripple's XRP and Stellar's XLM has sparked debate within the cryptocurrency community.

Recent price movements of Ripple’s XRP and Stellar’s XLM have sparked a fresh round of discussions within the cryptocurrency community. The two digital assets have exhibited a remarkable consistency in their price trends over the past decade, largely moving in the same direction.

This correlation has reignited conversations surrounding the potential impact of burning XRP tokens held in escrow by Ripple. A significant portion of the XRP community has been advocating for this measure, believing it would alleviate any perceived price suppression caused by Ripple’s periodic sales of XRP.

To provide some context, Ripple sold approximately 841 million XRP in the first quarter of 2024, and their current escrow holdings stand at 39.7 billion XRP.

In a bid to influence the token’s price, the Stellar Development Foundation (SDF) undertook a large-scale token burn in November 2019, removing 55 billion XLM from circulation. This monumental action, which constituted roughly half of the total XLM supply at the time, was valued at $4.4 billion.

However, this substantial burn had a negligible impact on XLM's price movements. Despite the significant reduction in supply, XLM’s price remained remarkably stable and continued to mirror XRP's price trends.

This episode serves as a crucial reference point for the ongoing debate about burning Ripple’s XRP escrow. A segment of the XRP community strongly advocates for burning these escrowed tokens, believing it would alleviate price suppression caused by Ripple’s periodic sales. For context, Ripple sold approximately 841 million XRP in the first quarter of 2024, and their current escrow holdings stand at 39.7 billion XRP.

This line of thought suggests that burning the escrowed XRP would reduce the total circulating supply, leading to an increase in the scarcity of the available XRP tokens. According to this theory, the higher scarcity would drive up the demand for XRP, ultimately resulting in a favorable impact on its price movements.

Prominent Australian attorney Bill Morgan, who is well-known for his involvement in cryptocurrency legal matters, offered valuable insights into the XRP-XLM correlation. He suggests that Stellar’s burn experiment serves as a strong indicator that burning XRP from escrow would likely be ineffective in manipulating XRP’s price movements.

According to Morgan's analysis, factors beyond the direct control of the XRP Ledger and Stellar ecosystems appear to be the primary drivers behind the price movements of both assets.

Adding to the conversation, Ripple’s Chief Technology Officer, David Schwartz, acknowledged the perplexing nature of the XRP-XLM price correlation. He emphasizes that external forces, independent of the Ripple and Stellar ecosystems, are likely to exert the most significant influence on the price movements of both tokens.

Schwartz reinforces this argument by highlighting the negligible impact of Stellar’s substantial token burn on its price divergence from XRP. He has previously expressed similar sentiments, suggesting that burning escrowed XRP would be an unproductive use of resources as it wouldn’t significantly alter XRP’s price trajectory.

Despite the ineffectiveness of a similar burn by Stellar, some within the XRP community believe burning Ripple’s escrowed XRP could boost the price by addressing investor sentiment.

However, experts counter that external factors, not investor sentiment, likely drive the XRP-XLM correlation, pointing to the ongoing legal case against Ripple having no lasting impact on the price link. The true cause of the correlation remains unclear, and further analysis is needed before deciding on burning Ripple’s XRP escrow.