XRP holders could not even dream of a better year as the cryptocurrency rose almost 800% and broke the $ 2 level early on Wednesday.
Aside from hitting the highest level since January 2018, this sharp price increase indicates that investors are not worried about the ongoing dispute over the “offer of unlisted securities” with the Securities and Exchange Commission.
However, just six hours after rising to $ 1.96, the XRP price fell more than 20%. During an interview, DCG CEO Barry Silbert said that it would be risky for US stock exchanges and companies to reuse XRP pending approval from the US Securities and Exchange Commission. These notes may have contributed to a unique liquidation of derivatives on stock exchanges of 420 million dollars.
XRP price in USD on Binance. Source: TradingView
Over the past two weeks, the most important catalyst for XRP’s growth has been Ripple’s lawsuit. Ripple’s lawyers have been given access to internal SEC discussions regarding the cryptocurrency, and recently the court refused to disclose the accounts of two Ripple executives, including CEO Brad Garlinghouse.
Given the recent rally, it will probably be inaccurate to identify a reason for the price correction. However, the impressive $ 420 million liquidations in 24 hours outperformed February 1, when the XRP fell 46% in two hours.
Settlement of total XRP futures contracts. Source: Bybt
The only explanation for this wonderful liquidation is the excessive influence used by buyers. To confirm this statement, it is necessary to analyze the amount of permanent contract financing. To balance the risk, exchanges will charge commissions for the purchase or sale of trades based on the amount of leverage required by each party.
XRP for permanent futures contracts with a financing rate of 8 hours. Source: Bybt
The graph above shows that the eight-hour financing rate is above 0.25%, which corresponds to 5.4% per week. Although this is too expensive, buyers will incur these fees during a price increase. For example, the current bullish price movement lasted for about three weeks, and before that there was another in early February.
The accusation of discontinuing pure leverage seems a bit overrated, although it definitely played a role in strengthening the current correction.
Furthermore, the record growth in open interest in XRP futures contracts was accompanied by an increase in volumes on spot exchanges. As a result, the final effect of major liquidations had to be offset by increased liquidity.
In volatile markets, there will always be subsequent liquidations. Therefore, investors should focus on how long it will take for the price to recover from it.
In principle, a daily decrease of 10% or 20% should not be interpreted in any other way. The correction is based on the number of orders previously accumulated in the trade order entries, and has no direct effect on bullish or bearish investor sentiment.