Yesterday, Ripple’s token, XRP, recorded completely erroneous prices on the Gemini platform compared to its real value on the main spot crypto markets.
Following Ripple’s success in its lawsuit against the SEC, the exchange owned by the Winklevoss brothers decided to relist XRP and allow trading to its customers.
The result was that the cryptocurrency touched a price of $50 for a few seconds, given the low liquidity in the market.
Let’s see together all the details of the affair.
Summary
Ripple: Gemini relists XRP token and observes high prices during first day of trading
Yesterday, the cryptocurrency exchange Gemini announced that it had relisted the cryptocurrency Ripple (XRP) after it had removed it several months ago due to compliance issues with US regulations.
In December 2020, the coin had been identified as a “security” by the Securities and Exchange Commission, a US federal agency responsible for overseeing the financial markets.
After the latest court victory by Ripple, in which Judge Annalisa Torres ruled that XRP does not represent a form of investment security (with the case still open) the exchange of the Winklevoss brothers decided to reopen trading of the coin.
However, the low liquidity on Gemini has set the stage for totally out-of-line prices compared to the value recorded on other crypto exchanges.
On major marketplaces such as Binance, Coinbase and Kraken, XRP marked a more or less stable price at $0.63 throughout the day yesterday.
On Gemini, however, starting at 8:30 PM (CET) the prices of the cryptocurrency began to deviate significantly from its benchmark.
The craziest thing in this whole affair is that for a few seconds, XRP touched a price of $50. Ripple’s market capitalization surpassed Bitcoin‘s for a few moments reaching $2.639 billion.
Of course, these results are totally fictitious as no one was really willing to buy the currency at that price.
The exchange of the Winklevoss brothers had to stop buying and selling activities for a few minutes to restore all values correctly.
Supporters of the crypto project took the opportunity to shout “to the moon” by joking that $50 was the price target in the short term for XRP.
The currency currently registers a value of $0.63, in line with the rest of the cryptocurrency exchanges.
The concept of liquidity in crypto markets
The absurd price reached by Ripple (XRP) on the Gemini exchange yesterday is representative of the fact that the presence of limited liquidity as a basis for trading can lead to alterations in asset prices.
Liquidity within an exchange, whether decentralized or centralized, is critical for the trading experience of users to be smooth and free of unpleasant surprises.
In the case of CEXs such as Gemini, the absence of a substantial amount of orders within the order book caused the price of XRP to skyrocket to $50 due to a “mistake” on the part of a user.
When trading through a centralized exchange, market orders are executed by taking the first available bid in the order-book going upward until the total amount is converted.
On yesterday’s day, at one point the order-book was nearly empty, so much so that one trader wisely placed a large sale at $50.
Another user, somewhat less smart, superficially clicked the market-buy option, easily reaching the $50 offer since there were no other $0.60 orders up to that price.
It is unknown whether that purchase of Ripple (XRP) was a mistake or an intentional action.
What we do know is that one trader managed to sell a bag of XRP at $50 while another marked a purchase price excessively high compared to current values.
As always, markets are a zero-sum game: if someone is gaining from a trade, someone else is losing.
Unfortunately, these situations, while interesting to report, highlight the inefficiency of some markets in the crypto sector.
Without liquidity, the user experience is severely damaged and can lead to the loss of a large amount of capital.
Even right now, liquidity on Gemini is really low: it only takes a single order of $37,000 to move the price of XRP by 2%.
By contrast, on Binance it takes about $2 million to achieve the same effects on the asset, as the platform enjoys a significantly more prosperous order-book.
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