XRP May Be Interesting, But Today XXRP Is A Risk For Me

Summary In my view, XRP’s narrative and technical momentum no longer seem strong enough to justify a 2x daily leveraged instrument. I believe the scarcity I previously saw in XRP’s escrow mechanism now looks more like predictable dilution, which changes the supply outlook. Bitcoin is on a bearish path despite positive catalysts, and in my opinion this removes the momentum that previously supported XRP and leveraged exposure to it.

High volatility amplifies volatility drag, which, in my view, acts like a hidden additional cost on top of the fund’s expenses in multiday holding periods. A volatility compression or a Bitcoin recovery could revive XRP’s momentum, but I personally expect a sideways accumulation phase rather than a V-shaped rebound. When I shared my first analysis on Teucrium 2x Long Daily XRP ETF (XXRP), I remember that XRP had rarely had so many factors in its favor.

The SEC lawsuit closed, and the regulatory framework changed in Europe and the US, with banks building on the XRP Ledger: the network is growing. The question I want to ask myself is, "Does it still have narrative and technical momentum today strong enough to justify using an instrument like XXRP? " I’ll give you a small spoiler by telling you right away that, in my view, today it is less able to do so than yesterday.

But before introducing you to the thesis …. What is XXRP? I covered it in depth in my last coverage, so here I’ll try to be more direct by saying right away that its objective is to replicate 2 times the daily performance of XRP.

To be clear, “daily” means from one NAV calculation (at 4:00 p. m. ET) to the next.

And in this sense, the fund’s fact sheet is explicit: the holding period it is designed for is measured in "days. " More on volatility drag associated with holding it for longer than that can be found in this SEC bulletin. XXRP - profile (Seeking Alpha) It does so with a management fee of 1.

89%, to which, adding the other expenses, we get a 2. 77% TER according to SA. On top of this, add the bid-ask spread, which today on a 30-day basis is 0.

27%, not negligible. To be clear, XXRP does not hold XRP. According to the prospectus, the main instruments are total return swaps referencing spot XRP ETPs listed in Europe, where the collateral is managed through a tri-party agreement.

My Previous Thesis What I would rather highlight is the nature of the considerations made in my last research. I really liked the fact that XRP was supported by the narrative of programmed scarcity, with Ripple having locked up 500 million XRP until 2028. In a concurrently bullish context for BTC, leverage could become a tactical tool.

And in fact, it delivered a superior performance compared to the S&P 500 (benchmark used by SA) but also BTC-USD. But since then things, in my opinion, have changed. My previous thesis (Seeking Alpha) What to Consider Today on XRP The “scarcity” I saw was simply the normal escrow mechanism, looked at from only one side.

In fact, on November 1st the escrow unlocked 1 billion XRP. Ripple re-locked 700 million and released 300 million into circulation. About 31.

1 billion XRP remain in escrow, enough to keep releasing supply until around 2035. Well, this means that rather than a mechanism of organized scarcity, it would become a sort of "predictable dilution," don’t you think? Which would change things.

To be clear, it is true that XRP is in a positive flow, such as the SEC lawsuit closing, the new ETPs launched by institutions, its RLUSD stablecoin, etc. But then Bitcoin itself would be within a positive flow of equal weight, such as the regulatory process carried forward by the Republicans, the new ETFs, etc. , etc.

And yet it is on a decidedly bearish path. And this is another important divergence compared to my last coverage, where instead BTC-USD was in a buying frenzy, so it had momentum. XRP vs BTC (Seeking Alpha) What to Consider on XXRP Moving on to XXRP, the context in which the instrument fits has also changed.

Being a 2x leveraged instrument of XXRP, in my opinion volatility also needs to be monitored carefully here. Because of volatility drag, when the position is held multiday, XXRP can undergo additional and, above all, distorted swings compared to the simple 2x calculation of XRP. And this distortion is amplified with volatility; the more it increases, the more, in my opinion, it is as if there were an additional hidden fee on top of the 2.

77% weighing on multiday performance. The 3-month window shows a volatility of 75%, the 1-month one 51% (albeit slightly contracting); in any case we are talking about fairly elevated figures. This means that XRP’s expected return must be sustained to justify the cost of volatility drag and the TER.

From my calculations, which are nothing more than an interpretation of the ⅓-month volatility within the classic formula 1 − e^(−σ²), we’re talking about a weight of between 5 and 6%, to which the 2. 77% TER is added. And considering the context in which XRP fits and the risk, I think it is too much.

XRP - XXRP (Seeking Alpha) My Opinion With XRP in a downtrend, within which BTC-USD is also positioned, with the support of scarcity gone, or at least scaled back, and with a higher annualized vol. that increases the weight of volatility drag, I, personally, think the right rating for XXRP is SELL. If I had to take a position on the crypto segment, personally, in bearish phases, I prefer to try to trade directly on BTC-USD for reasons related to common usage logic and more transparent scarcity programs, as I discuss extensively here.

XRP - BTC (Seeking Alpha) Risks to My Thesis Naturally, if XRP’s volatility compresses and the price enters an uptrend, daily leverage can work in favor of those holding the fund. Likewise, I am fairly convinced that, based on statistical analysis, a sudden recovery of BTC-USD would bring momentum back to XRP, so XXRP would become more interesting. But in any case, given the direction things are heading, I would rather expect a period of accumulation on BTC-USD as well, as a sideways movement rather than a V-shaped recovery.

I discussed it in depth here. XXRP - risk grade (Seeking Alpha) Conclusion With high volatility, also on a forward-looking basis, with BTC in a sideways accumulation phase, and with a scarcity program that, in my opinion, is much more scaled back than I had imagined, I do not think that using XXRP will become statistically advantageous in the near future.