Ripple (XRP) Price Forecast: $380M Open Interest might trigger a major move

Key Insights:

• Ripple (XRP) price has gained 10%, rising from $0.49 to $0.54 between Jan 25 to Jan 30. 
• In the derivatives markets, XRP Open Interest has dipped slightly, from $386 million to $380 million in the last 5 trading days. 
• The Parabolic SAR technical indicator hints at an imminent reversal of the ongoing price uptrend. 

Ripple (XRP) price has gained 10% rising from a local low of $0.49 on Jan 25 to reach $0.54 at the time of writing on Jan 30. However, despite the price bounce, derivative market trends show that futures traders have maintained a skittish disposition.

Is XRP on the verge of a pullback, or will it break out toward $0.60? 

XRP Open Interest Dips Despite Price Gains

Over the past week, XRP price has made significant gains in the spot markets. An 8% rebound from $0.49 to $0.53 has sparked early speculations of a potential breakout toward $0.60.

But notably, vital derivative market metrics, suggest that futures traders do not share this optimism. 

Santiment’s open interest data tracks the value of active or outstanding futures contracts for a specific cryptocurrency. It serves as a key indicator of market  liquidity and the current level of investor participation. 

The chart below shows that while XRP price has gained 10% between Jan 25 to Jan 30, the Open Interest has actually trended downward from $386 million to $380 million during that period. 

This negative divergence between open interest and the price of an asset is a tell-tale signal of a cautious disposition among futures traders. 

When price increases and open interest decreases as observed, it indicates that speculative traders are capitalizing on the recent price bounce to lock-in profits.

Without a major bullish catalyst or narrative, XRP traders currently appear  reluctant to double-down on their LONG positions. 

If investors continue to close out their positions, the decline in capital stock and market liquidity will likely trigger an XRP price pullback in the days ahead.

XRP Funding Rate is also in decline

Funding rate is another vital derivative metric pointing towards an imminent XRP price pullback.

Funding rate represents the fee that derivative contract holders pay to keep their positions open. XRP Funding rate trends, although positive, have remained flat since the start of 2024.

The Santiment chart below vividly illustrates that XRP Funding rate has dipped from 0.062% to 0.009% between January 2 and January 30. 

Put concisely, bullish XRP futures traders are now paying 85% less than they did at the start of the year, to keep their long positions active. 

While XRP open interest has shrunk amid the recent price bounce, the rapid funding rate trends further affirms that derivative traders are not betting big on the rally. 

A decline in funding rate indicates a lack of optimism among bullish traders. Without major catalysts or narratives to drive positive speculative trading activity, LONG traders are paying less to keep their positions open, while others are closing out their positions early. 

Unsurprisingly, this period of declining funding rate decline in XRP derivative markets has coincided with a 15% price drop year-to-date.

XRP Price Forecast: Another Correction Before Major Breakout Phase

Drawing inferences from the decline in open interest and funding rates trends analyzed above, XRP price appears to be on the verge of a pullback toward the $0.50 zone. 

The Parabolic Stop and Reverse (SAR) technical indicator also affirms this stance. When the Parabolic SAR dot points above the current price, it suggests that the price trend might reverse and start moving downwards. 

In essence, with the XRP Parabolic SAR dots currently pointing to $0.57 while the current price is $0.54, traders often interpret this situation as a sell signal. It implies 

If this scenario plays out as predicted, XRP bulls can mount significant support at the $0.50 psychological support. Losing that key support area could set-off margin call triggers and possibly accelerate further downswing toward $0.45.  

On the flipside, the bulls can invalidate this bearish XRP price forecast if they can orchestrate a move above the $0.60 area. But, as outlined by the SAR dots above, the $0.57 area could form major resistance.