XRP token has seen a significant decline of 20% in 2024 and is currently nearing its lowest daily close since October 18, 2023. Despite this challenging price performance, traders at the OKX exchange are heavily favoring long (buy) leverage positions.
What’s interesting is that funding costs for XRP futures have remained stable for the past month, raising questions about whether retail traders are mainly betting on a price decline.
Some of the negative price performance of XRP can be attributed to adverse news surrounding Ripple, the company behind the token launch and the development of Ripple Ledger’s database. On February 5, U.S. District Court Judge Sarah Netburn granted a motion from the U.S. Securities and Exchange Commission (SEC) that requires Ripple to produce financial statements, including contracts governing institutional sales of XRP tokens.
The ongoing dispute with the SEC began in December 2020 when the regulator accused Ripple and its executives of offering unregistered securities. However, in July 2023, a judge ruled in favor of Ripple, stating that XRP was only considered a security when sold to institutional investors. Despite this, the recent decision suggests that the SEC has built a case to support its complaint, which could potentially lead to 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 January 31. Analysts noted transactions totaling 213 million XRP, valued at around $112.5 million at the time. This incident raises questions about the company’s adherence to robust security measures, even if it only affects Larsen’s assets.
Interestingly, Ripple validators approved a “clawback” function less than a week later, which allows issuers on the XRP Ledger to repossess tokens. According to David Schwartz, Ripple’s chief technology officer, this functionality could be used to resolve legal disputes and comply with court orders. Schwartz explains that this new function is different from the current “freeze” feature already present in the network.
Another source of disappointment for 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 January 11 interview. This news has dampened expectations for an XRP ETF.
Despite the recent negative events surrounding XRP and Ripple, top traders at the OKX exchange are still heavily favoring long positions. The long-to-short net ratio, which consolidates derivatives positions, shows a significant shift towards longs. The same trend is seen on the Binance exchange, although to a lesser extent. This suggests that XRP whales and market makers are increasing their bullish positioning despite the low price.
To determine whether retail traders are taking the opposite side of the trade and leveraging bets on XRP’s price, we can look at the funding rate of perpetual contracts. Data shows that XRP funding rates have been close to zero since January 4, indicating a balanced demand for leverage between longs and shorts. Therefore, even if professional traders are leaning bullish, there is a counterparty of similar size in terms of leverage demand.
Overall, the data suggests that XRP whales and market makers are not blindly adding leveraged longs while the price continues to decline. Additionally, there is no indication that these players are at risk of being liquidated, as the funding rate remains balanced.
Please note that this article does not provide investment advice or recommendations. Readers should conduct their own research before making any investment decisions.