XRP Open Interest Rises by $65 Million: Can it Stay Above $0.50? 

Key Insights:

• Ripple (XRP) price is hovering just above the $0.50 level at press time on Feb. 7 but vital derivatives market trends reveal concerning signals.
• While XRP price has dipped 6% in the last 7 days, Open Interest has increased by $65 million
• XRP LONG/SHORT ratio trends shows that bears are been dominant over the last 30 days.

Ripple (XRP) price is down 21.5% in 2024 so far. Key data trends show that SHORT traders are tightening the stronghold in the XRP derivatives markets.

Can XRP price avoid a bearish reversal below the vital $0.50 support territory?

XRP Open Interest Increased by $65 million Amid price downtrend  

XRP has experienced a series of bearish news events in recent weeks. More recently, Ripple Labs’ co-founder Chris Larsen losing $120 million to a brazen hack on Jan 31 has thickened the negative sentiment. 

Exchanges and law enforcement agencies have intervened, with Binance CEO announcing the siezure of  coins worth $4.2 million linked to the hack. However,  whale investors’ reaction to the event appears to have further tilted the XRP market momentum in the bears’ favor.

In effect XRP price has declined 6% from $0.54 to $0.50 between Jan. 30 and Feb. 7.

Worryingly, recent trends in the derivatives markets suggests that even more bearish action could follow. 

Coinglass’ Open Interest data tracks the nominal value of active futures contracts currently listed from a particular crypto asset. The latest readings shows that, while XRP price has shrunk 21.5% in 2024, the so far. 

But in an unusual trend, XRP open interest has increased by $66 million in the last 10 days dating back to Jan 26. 

Typically, when open interest increases during a price downtrend, strategic investors interpret this as a signal that SHORT traders are doubling down on their positions. 

Hence this $66 million uptick in XRP open interest, suggests a reinforcement of bearish sentiment in the market, as more traders anticipate and position themselves for continued downward movement in prices.

XRP SHORT contracts now outnumber the LONGS

The LONG/SHORT ratio is another vital derivatives metric that currently affirms the bearish outlook. Essentially, it tracks the ratio of long positions to short positions in the market, providing insight into the sentiment and positioning of traders. 

XRP LONG/SHORT ratio has trended below 0.99 in 27 of the last 30 trading days, indicating the bears prolonged dominance. At the time of writing on Feb. 6, XRP LONG/SHORT ratio is 0.97. 

This implies that 50.7% of active XRP futures contracts are SHORT positions, against 49.3% LONGS.

When the LONG/SHORT ratio falls below 0.99 for an extended period as observed above, it indicates bearish sentiment, with more traders holding SHORT positions in anticipation of further price decline. 

In conclusion, this negative divergence between XRP price and open Interest combined with the low LONG/SHORT ratio could form a precursor to more downsizing. 

If this scenario plays out as historically observed, XRP holders can anticipate a downswing below $0.50 in the days ahead. 

XRP Price Forecast: Losing $0.45 Could Catalyze Bigger Losses 

In addition to the bearish signals among speculative traders, current trends observed on the Parabolic SAR technical indicator also support the bearish XRP price forecast. 

When the Parabolic SAR points above an asset’s current price, it indicates a dominant bearish momentum.

In this case, after a 6% deficit in the last 7 days, XRP’s Parabolic SAR (blue dots below ) currently point to $0.55,while the current price is $0.50, confirming the negative outlook. 

Traders often interpret this alignment as a signal to sell or enter more SHORT positions, as it implies that the price trend might be on the verge of further decline. 

If this scenario plays out as predicted, the bulls can mount significant support at the $0.45 psychological support to avoid widespread margin call triggers. Failure to hold the $0.45 support could trigger further downswing toward $0.40. 

Conversely, the bulls could negate this bearish forecast by staging a rebound toward $0.55. However, as outlined by the SAR dots above, the resistance sell-wall at $0.54 could form a daunting challenge.