Since XRP rallied to $1.96, $420 million in leveraged long sellers liquidated their positions.

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The price of XRP fell by 20% shortly after reaching a 2021 peak of $1.96, but have the altcoin’s bullish fundamentals changed?

XRP investors couldn’t have wished for a better year, when the cryptocurrency soared nearly 800 percent and flirted with the $2 mark in the early hours of April 14.

This robust price surge, in addition to reaching its highest level since January 2018, indicates that consumers are unconcerned about the current SEC “unregistered securities offering” controversy.

However, just 6 hours after reaching $1.96, the price of XRP plummeted by more than 20%. During an interview, DCG Group CEO Barry Silbert said that relisting XRP before obtaining SEC approval would be dangerous for exchanges and companies in the United States. These comments may have led to today’s $420 million long liquidations on derivatives exchanges, which are unprecedented.

XRP price in USDT at Binance. Source: TradingView

Victories in Ripple’s court wars have been the key drivers of XRP’s rally in recent weeks. Lawyers for Ripple were given access to internal SEC meetings on cryptocurrencies, and a court recently refused publication of the financial statements of two Ripple executives, including CEO Brad Garlinghouse.

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Given the recent rebound, identifying a particular cause of the price correction is likely to be misleading. Nonetheless, the remarkable $420 million long liquidations beyond 24 hours outnumber those of February 1st, when the XRP price dropped by 46 percent in two hours.

 

XRP futures aggregate liquidations. Source: Bybt

The only plausible explanation for this staggering liquidation is that sellers used undue leverage. To back up such a claim, one must examine the funding levels of permanent contracts. Exchanges can charge either longs or shorts to balance their costs, depending on how much leverage each side requires.

XRP perpetual futures 8-hour funding rate. Source: Bybt

According to the graph above, the 8-hour funding average has surpassed 0.25 percent, which is equal to 5.4 percent a week. Despite the fact that this is unfair, consumers can bear these payments through strong market rallies. For eg, the recent price increase has lasted nearly three weeks, and a previous one occurred in early February.

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It seems a little drastic to blame the liquidations solely on leverage, though it obviously played a role in amplifying today’s correction.

Furthermore, the record increase in XRP futures open interest was followed by an increase in turnover at spot exchanges. As a result, the eventual effect of larger liquidations could have been absorbed by the higher liquidity.

In dynamic markets, cascading liquidations will still occur. As a result, investors should pay attention to how long it takes for the price to rebound from it.

Fundamentally, a 10% or 20% intraday decline can be viewed the same way. The correction is determined by the number of bids that were previously piled at exchange orderbooks and is unrelated to investors’ bullish or bearish sentiment.

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