XRP token has experienced a 20% decline in 2024 and it currently is approaching its lowest daily close since Oct. 18, 2023. Despite the challenging price performance, prominent traders at the OKX exchange heavily favor 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. Despite this, the latest decision indicates that the SEC has built a case to justify their complaint, leaving potential liabilities for Ripple.
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 with Thinking Crypto’s Tony Edward.
Given the recent events surrounding e XRP token and Ripple, investors might expect bearish sentiments from top traders. However, the trend has been the opposite according to the long-toshort ratio The long-to-short net 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.
Source : Cointelegraph by Marcel Pechman / Feb 7, 2024