Fresh trouble is brewing for blockchain and crypto company Ripple as a new research report from Messari suggests that its market capitalization is overstated by $6.1 billion. It is currently the second largest cryptocurrency by market capitalization and a $6.1 billion dent in market cap could throw it way behind Ethereum on the list. Ripple is likely to disclose its Q4 2018 transparency report this week.

What Does Messari Suggest?

According to Messari, their extensive research into the “health and legitimacy” of XRP’s market cap available on third-party services has led to the conclusion that the “figure is significantly overstated. Potentially by as much as $6.1 billion.” According to the report, the coin’s liquid circulating supply, as well as its market cap, is exaggerated by a whopping 48%.

Ripple’s current market cap is just over $13 billion while Ethereum’s market cap is $12.24 billion. Interestingly, Ethereum is a higher priced asset with over 104 million ETH coins while Ripple’s XRP is a penny cryptocurrency with over 41 billion coins in circulation. Taking $6.9 billion off the market cap of XRP will throw it way behind Ethereum.

Messari has advised major indices like Bloomberg-Galaxy, MVIS CryptoCompare, Bitwise and passive funds like Grayscale’s Digital Large Cap to revise their circulating supply assumptions for XRP so it could represent the network liquidity more accurately. It also suggests that more precise estimates will require disclosers from Ripple. Messari reached out to ripple representative multiple times but haven’t received a comment yet.

Ripple Co-founders Hold the Key

According to Messari, Ripple’s co-founder Jed McCaleb has selling resections on his crypto holdings which lock up 6.7 billion XRP coins. These coins can be sold at a theoretical rate of 1% of daily trading volume. McCaleb told Messari:

“What I can sell a day is significantly less than 1% of the total daily volume. I’m not sure I’m at liberty to say how (reference trading volume) is calculated.”

Ripple’s other co-founders Chris Larsen and Arthur Britto may have similar selling restrictions as well. While the exact amounts are unknown, Ripple does have an illiquid position of 5.9 billion XRP committed publicly to RippleWorks by Larsen in August 2014 in a public forum post that has since been removed.  This California based foundation holds 2.5 billion XRP currently.

Taking a few other locked up supplies with selling restrictions into account, Messari suggests that at least 19.2 billion of 41 billion XRP (which is calculated as the “circulating supply”) could be illiquid. Messari also noted that Ripple does not share its methodology of calculating trade volume for XRP and 99% if its trading volume comes from abroad, many of which could be suspected of wash trading.

UPDATE- Ripple Responds to the Report

Ripple has shunned the findings of the report by Messari claiming:

“Not only does this report contain several inaccurate assumptions around lockups and selling restrictions, the entire report is based on an incorrect calculation of market cap.”

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