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XRPâs price dropped by 20% shortly after making a 2021 high at $1.96, but have the altcoinâs bullish fundamentals changed?
XRP holders couldnât have asked for a better year as the cryptocurrency rallied almost 800% and flirted with a $2 level in the early hours of Wednesday.Â
In addition to achieving its highest level since January 2018, this robust price increase signals that investors are not worried about the ongoing SEC âunregistered securities offeringâ dispute.
However, just six hours after rallying to $1.96, XRPâs price crashed by more than 20%. During an interview, DCG Group CEO Barry Silbert said it would be risky for exchanges and companies in the United States to relist XRP ahead of receiving the United States Securities and Exchange Commissionâs blessing. These remarks may have contributed to the unprecedented $420-million long liquidations on derivatives exchanges today.
XRP price in USDT on Binance. Source: TradingView
Over the past couple of weeks, the primary catalysts for XRPâs rally have been victories in Rippleâs legal battles. Lawyers representing Ripple were granted access to internal SEC discussions regarding cryptocurrencies, and more recently, a court denied the disclosure of two Ripple executivesâ financial records, including CEO Brad Garlinghouse.
Considering the recent rally, pinpointing a single reason for the price correction will likely be inaccurate. Nevertheless, the impressive $420-million long liquidations past 24-hours exceed those of Feb. 1 when XRPâs price crashed by 46% in two hours.
XRP futures aggregate liquidations. Source: Bybt
The only logical reason behind this staggering liquidation is excessive leverage used by buyers. To confirm such a thesis, one must analyze the perpetual contracts funding rate. To balance their risks, exchanges will charge either longs or shorts depending on how much leverage each side is demanding.
XRP perpetual futures 8-hour funding rate. Source: Bybt
The chart above shows that the eight-hour funding rate is surpassing 0.25%, which is equivalent to 5.4% per week. Although this is excessive, buyers will withstand these fees during strong price rallies. For example, the current upward price move lasted for almost three weeks, and prior to that, another took place in early February.
Blaming the liquidations exclusively on leverage seems a bit extreme, although it certainly played its part in amplifying todayâs correction.
Moreover, the record growth in XRP futures open interest was accompanied by a hike in the volume at spot exchanges. As a result, the eventual impact from more significant liquidations should have been absorbed by the increased liquidity.
Cascading liquidations will always take place in volatile markets. Thus, investors should focus on how long it takes until the price recovers from it.
Fundamentally, a 10% or 20% intraday drop should not be interpreted differently. The correction depends on how many bids were previously stacked at exchange orderbooks and is not directly related to investorsâ bullish or bearish sentiment.
The views and opinions expressed here are solely those of the author and do not necessarily reflect the views of Cointelegraph. Every investment and trading move involves risk. You should conduct your own research when making a decision.
Disclaimer
The views and opinions expressed in this article are solely those of the authors and do not reflect the views of Bitcoin Insider. Every investment and trading move involves risk - this is especially true for cryptocurrencies given their volatility. We strongly advise our readers to conduct their own research when making a decision.