XRP Experiences 20% Drop Amid Legal Challenges; Traders Remain Bullish
Summary:
The XRP (XRP) token has declined by 20% in 2024 and is nearing its lowest daily close since Oct 18, 2023. Despite this, major traders at the OKX exchange heavily favor buy leverage positions. Ripple, the company behind XRP, faces legal issues with the SEC and was recently ordered to release financial statements concerning institutional sales of the token. Meanwhile, Ripple's co-founder was hacked, raising security concerns. Yet, despite these circumstances, key traders appear bullish on XRP, with even professional traders maintaining balanced positions.
The XRP digital coin has seen a 20% downturn in 2024 and appears to be moving towards its least daily close since October 18 of the previous year. However, prominent market participants on the OKX platform still significantly favor long (buy) leverage positions, despite XRP's challenging price behavior. Interestingly, XRP futures' funding expenses have stayed flat over the last month, leading to inquiries as to whether retail market participants mainly anticipate a price decrease.
It's speculated that some of the downward trajectory witnessed in XRP's pricing can be linked to unfavorable developments related to Ripple, which is the entity responsible for introducing the XRP token and maintaining the Ripple Ledger’s database. On February 5, Sarah Netburn, U.S. District Court Judge, granted the U.S. Securities and Exchange Commission (SEC) a motion to compel Ripple to disclose financial records, including information pertaining to XRP token "institutional sales."
The SEC first initiated a conflict with Ripple in December 2020, alleging the company and its executives sold unregistered securities, but a judge ruled in favor of Ripple in July 2023, determining XRP was considered a security only when sold to institutional buyers. Despite this ruling, recent developments suggest the SEC has constructed a solid argument to support their allegations, which could potentially lead to Ripple facing liabilities.
Further undermining investor confidence, the personal accounts of Ripple’s co-founder and executive chairman, Chris Larsen, were hacked at the end of January, with total transactions amounting to 213 million XRP, worth approximately $112.5 million at that time. This incident brought into question the robustness of the company's security measures, even though it directly affected only Larsen's personal assets.
Shortly after, Ripple validators authorized a "reclaim" feature, enabling issuers on the XRP Ledger to recover tokens. This function could be employed to resolve legal disputes or adhere to court mandates, according to Ripple’s Chief Technology Officer, David Schwartz.
XRP investors’ hopes for SEC approval of an XRP spot exchange-traded fund (ETF) seem to be dwindling according to insights shared by Scott Johnsson, general partner at Van Buren Capital, and James Seyffart, a senior Bloomberg ETF analyst.
Despite the string of negative developments involving Ripple and the XRP token, key traders have been bullish. The long-to-short net ratio illustrates this trend, agglomerating derivative positions across both perpetual and quarterly futures contracts, thereby serving as a gauge on whale and arbitrage desk positions.
Remarkably, top traders on the OKX platform exhibit a 7.2x ratio favoring longs, which is a dramatic shift from the ratio of 1.6x recorded on February 1. There is less disparity on Binance's platform, with longs favored at a reasonable 2x ratio. It appears that despite XRP's price nearing a bottom at roughly $0.50, large traders and market makers have boosted their bullish posture.
To gauge whether retail investors have taken a contrary stance and placed leveraged bets on XRP’s price, it's crucial to observe the funding rate of perpetual contracts. The equilibrium in demand for leverage from both longs and shorts since January 4, with rates near zero, suggests that even though professional traders are bullish, their positions are met with an equivalent degree of leverage demand.
Conclusively, data implies it is improbable that XRP’s market participants are piling on leveraged long positions thoughtlessly, even as the price continues to tumble. Encouragingly, there's no sign that these traders are near to being liquidated, given the balanced funding rate.
This piece does not offer investment advice or recommendations. Investment and trading conducted involve risk; therefore, readers are encouraged to carry out independent research prior to making any decisions.
Published At
2/7/2024 11:40:00 PM
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