Is XRP Facing Challenges or Hidden Opportunities?

Experienced XRP traders continue to utilize leverage despite negative news weighing on the altcoin's value.

XRP price is falling this month, but surprisingly, big investors are still betting on its rise.

XRP token has been going through a rough patch lately, with a 20% decline in 2024 and approaching its lowest daily close since Oct. 18, 2023. But despite this challenging price performance, traders at the OKX exchange seem to be heavily favoring long (buy) leverage positions. 😮

Surprisingly, funding costs for XRP futures have remained flat for the past month, raising questions about whether retail traders are predominantly betting on a price decline. 📉

Has negative news about Ripple and a founder impacted XRP price?

Some of XRP’s negative price performance can be attributed to adverse news surrounding Ripple, the company behind the token launch and the development of Ripple Ledger’s database. On Feb. 5, U.S. District Court Judge Sarah Netburn granted a motion from the U.S. Securities and Exchange Commission (SEC), requiring Ripple to produce financial statements, including contracts governing XRP token “institutional sales.” 😰

The ongoing dispute with the SEC began in December 2020 when the regulator alleged that Ripple and its executives offered unregistered securities. However, in July 2023, a judge granted summary judgment in favor of Ripple, ruling that XRP was only a security when sold to institutional investors. But the latest decision indicates that the SEC has built a case to justify their complaint, leaving potential liabilities for Ripple. 📜🔒

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Investor distrust in Ripple was further fueled by the hack of the company’s co-founder and executive chairman Chris Larsen’s personal accounts on Jan. 31. Analysts highlighted transactions totaling 213 million XRP, valued at about $112.5 million at the time. Regardless of whether the issue solely impacts Larsen’s assets, questions arise about the company’s adherence to robust security measures. 😱

Interestingly, Ripple validators approved a “clawback” function less than a week later, allowing issuers on the XRP Ledger to repossess tokens. According to David Schwartz, Ripple’s chief technology officer, the functionality could be used to resolve legal disputes and comply with court orders. Schwartz explains that the new function differs from the current “freeze” feature already present in the network. 👥💼

XRP ETF expectations drop and pro traders position using derivatives

Another source of dissatisfaction among XRP investors is the realization that the chances of SEC approval for an XRP spot exchange-traded fund (ETF) are “very slim,” according to Van Buren Capital’s general partner Scott Johnsson. Senior Bloomberg ETF analyst James Seyffart shared a similar outlook in a Jan. 11 interview.

Given the recent events surrounding the XRP token and Ripple, investors might expect bearish sentiments from top traders. However, the trend has been the opposite according to the long-to-short ratio. This ratio consolidates derivatives positions across perpetual and quarterly futures contracts, offering insight into the positions of whales and arbitrage desks. 🐋

Noticeably, top traders at the OKX exchange currently present a 7.2x ratio favoring longs, approaching the highest in 30 days—a significant shift from the 1.6x indicator on Feb. 1. Data from the Binance exchange is less skewed, favoring longs at a healthy 2x, up from 1.8x on Feb. 1. In essence, XRP whales and market makers have increased their bullish positioning despite the price bottoming near $0.50. 🐳

To assess if retail traders took the opposing side of the trade and leveraged bets on XRP’s price, one should monitor perpetual contracts’ funding rate. Also known as inverse swaps, these derivatives instruments incorporate an embedded rate typically recalculated every eight hours. Essentially, a negative rate signals excessive demand for leverage short positions. 🔄

Data reveals XRP funding rates have been near zero since Jan. 4, indicating a balanced demand for leverage between longs and shorts. Therefore, even if professional traders lean bullish, their positions find a counterparty of similar size in terms of leverage demand.

Ultimately, data shows it is unlikely that XRP whales and market makers are blindly adding leveraged longs while the price continues to decline. On the positive side, there’s no indication that these players are close to being liquidated, as the funding rate remains incredibly balanced. 🎯📊

Q&A: Addressing readers’ concerns

1. Will Ripple’s ongoing legal battle with the SEC have a long-lasting impact on XRP’s price? It is difficult to predict the exact impact of the legal battle on XRP’s price. However, the negative news and potential liabilities for Ripple have certainly undermined investor confidence. The outcome of the legal dispute could have significant consequences for both Ripple and XRP.

2. What are the chances of an XRP ETF getting approved by the SEC? According to industry experts, the chances of an XRP spot ETF approval are “very slim.” The SEC’s concerns about the regulatory status of XRP have led to a lack of consensus among market participants. Therefore, it is unlikely that an XRP ETF will be approved in the near future.

3. How should retail traders interpret the balanced funding rates for XRP futures? The balanced funding rates indicate that there is an equal demand for leverage between longs and shorts among retail traders. This suggests that retail traders are not overwhelmingly betting on a price decline or increase. It is important for retail traders to carefully analyze market trends and sentiment before making any investment decisions.

Future outlook and investment recommendations

While XRP has faced its fair share of challenges, there may also be hidden opportunities for investors. The bullish positioning of XRP whales and market makers, despite the price decline, shows that there is still confidence in the token. Additionally, the balanced funding rates indicate a balanced demand for leverage, which is a positive sign.

As the legal dispute between Ripple and the SEC unfolds, it is important for investors to closely monitor the developments and regulatory decisions. Any resolution in favor of Ripple could have a positive impact on XRP’s price. However, it is crucial to exercise caution and conduct thorough research before making any investment decisions.

Investors should also consider diversifying their portfolios and exploring other promising blockchain projects in the market. With the rapidly evolving landscape of cryptocurrencies and blockchain technology, there are numerous investment opportunities worth exploring.

References:

1. XRP price prediction: XRP drops to $0.60 support, is it time to buy the dip?

2. Ransomware returns – Chainalysis flags record $1B payments in 2023

3. BTC blasts past $47K as Bitcoin ETF excitement gets feverish

4. Ripple validators approve “clawback” function for XRP

5. Requiring Ripple to produce financial statements

6. Hack of the company’s co-founder and executive chairman

7. XRP futures data from OKX and Binance

Feel free to share this article on your favorite social media platforms and engage with fellow investors. Let us know your thoughts on XRP’s future and how you navigate the current challenges and opportunities!

Disclaimer: The above article is for informational purposes only and does not constitute financial advice. Readers should do their own research and consider seeking professional guidance before making any investment decisions.

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