1 Key Insider Is Supposedly Dumping XRP. Should You Be Buying It?

When a crypto whale's wallet starts moving a lot of coins, the reflex is to assume someone knows something you don't -- and that kind of hunch can develop into a bad feeling very quickly. Just such a situation is developing for many investors in XRP (CRYPTO: XRP), which, as a reminder, is issued by a company called Ripple.

On Oct. 20, a wallet linked to Ripple co-founder Chris Larsen sold around 50 million XRP worth approximately $120 million, leading many crypto watchers to fret about the implications of key insiders potentially exiting the coin. Is XRP still worth buying in light of this move, or is Larsen's sale a harbinger of hard times ahead?

Image source: Getty Images.

There's more to this than meets the eye

Explaining the sale of his tokens, Larsen publicly said that his intention is to invest the funds into Evernorth, a newly announced digital asset treasury (DAT) business that aims to go public soon, and that will buy and hold XRP at scale. In other words, what looks like him dumping his coins today is actually a strategic move that's meant to provide seed funding to a buyer of at least the same size tomorrow. Evernorth won't be the first XRP treasury company, but it will be the largest one, assuming it actually does go public.

As of now, it plans to do that via a merger with a special purpose acquisition company (SPAC), and raise more than $1 billion in the process, with a mandate to use those funds to purchase XRP on the open market. The transaction is slated to close in the first quarter of next year if everything goes according to plan. One key investor in Evernorth is the SBI Group, a Japanese conglomerate with a financial services business that has a long-running relationship with Ripple, and which engaged in a pilot program using XRP starting in 2021.

The advent of another treasury company that will buy and hold XRP is an unambiguously good thing for the crypto. The fact that Larsen chose to sell some of his holdings to fund Evernorth is thus nothing to worry about whatsoever.

Is this a reason to buy XRP now?

This is a case study in incentives. While the optics of an insider moving coins around can (and usually does) generate some negative sentiment toward the cryptoasset in question, as transfers can be asset sales, in this case, the stated aim of the move is to help fund a vehicle that's purpose is to buy XRP and keep it for years. That program has the potential to generate net demand and constrain the float, putting upward pressure on XRP's price. Assuming Evernorth's bid to go public works out, and it executes on its treasury strategy as described, the setup here is mildly bullish for long‑term holders.

There's another favorable aspect. Evernorth, assuming it goes public with the targeted amount of funding and uses nearly all of it to buy XRP at the prevailing market price, will later be able to engage in on-chain lending, liquidity provisioning, or other yield-generating on‑chain activity. With a capital base of approximately $1 billion, it would be a substantial new player on the network.

Plus, given Evernorth's close relations with Ripple, it could act as a showcase for institutional investors in terms of the value of core chain features, such as those for regulatory compliance. Having Evernorth as a marketing example could thus help to attract more capital to the XRP Ledger -- and that's beyond the influx it will bring if it succeeds in going public and allocating its fiat currency capital as it aspires to. Of course, it's also possible that the bid to take Evernorth public will fail, but that would be a surprising outcome.

So, when paired with Ripple's ongoing efforts to develop the XRP Ledger into a piece of technology that appeals to financial institutions, this coin is definitely still worth buying. However, you should keep your expectations for how Evernorth's eventual purchases will impact the XRP's price fairly low at first. Its tightening of the outstanding supply of XRP will take a while to feed through into higher prices.

Alex Carchidi has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends XRP. The Motley Fool has a disclosure policy.