XRP’s Run-Up To $3 Comes With A 20% Price Crash Warning

XRP (XRP) has surged by more than 25% this week to reach $3 on Jan. 16, the first time in six years.

The cryptocurrency’s rise comes ahead of a series of potentially bullish developments, including the upcoming inauguration of US President-Elect Donald Trump on Jan. 20, which coincides with the departure of anti-crypto Securities and Exchange Commission Chairman Gary Gensler.

Speculation suggests the incoming pro-crypto administration could lead to favorable regulatory changes, including the approval of XRP exchange-traded funds (ETFs). According to JPMorgan analysts, such approvals could attract between $4 billion and $8 billion in new investments.

However, XRP’s sharp rally appears overheated, and technical indicators indicate potential downside risks. Such declines could occur around the Trump inauguration—a classic “sell-the-news” scenario.

XRP Bearish Divergence Amps Up 20% Crash Risks

As of Jan. 16, XRP’s daily relative strength index (RSI), a momentum oscillator that measures the speed and change of price movements, had climbed above 70. Readings above this threshold typically suggest overbought conditions, where the asset may be overvalued and due for a correction or consolidation.

Additionally, there is a growing bearish divergence between XRP’s price and RSI. This occurs when the price continues to make higher highs while the RSI forms lower highs, indicating that the momentum behind the price rally is weakening. Such divergences are often considered early warnings of a potential reversal or a significant price pullback.

In XRP’s case, this setup points to a likelihood of a retracement toward its 20-day exponential moving average (20-day EMA; the purple wave), a support level often used by traders to gauge short-term trends. The 20-day EMA hovers near $2.52, representing a potential 20% decline by January’s end when measured from XRP’s current levels.

SEC Renews Efforts to Classify XRP As Unregistered Security

The fundamental outlook for XRP has also turned cautious due to renewed legal pressures from the US Securities and Exchange Commission (SEC).

In a Jan. 15 filing with the Second Circuit Appeals Court, the SEC challenged Judge Analisa Torres’s prior ruling that XRP sales to retail investors were not unregistered securities offerings.

The SEC argued that the New York District Court erred in its decision and requested the appeals court to overturn the ruling, potentially reclassifying retail XRP sales as unregistered securities.

Ripple’s chief legal officer, Stuart Alderoty, criticized the appeal, saying that the “SEC’s appeal brief is a rehash of already failed arguments – and likely to be abandoned by the next administration.”

Excerpts:

“We’ll respond formally in due time. For now, know this: the SEC’s lawsuit is just noise. A new era of pro-innovation regulation is coming, and Ripple is thriving.”

XRP’s price dropped by up to 7.23% after the SEC appeal, only to recover sharply on signs that the Trump administration might squash the commission’s efforts against Ripple.

XRP Triangle Setup Toward $5.50 Target is Intact

XRP’s intraday correction has done little to dissuade its prevailing bullish continuation setup dubbed “symmetrical triangle.”

For the unversed, a symmetrical triangle forms when the price trades between two converging trendlines after rallying to the upside. Meanwhile, it resolves when the price breaks above the triangle’s upper trendline and rises to the level that is at length equal to the structure’s maximum height.

As of Jan. 16, XRP had entered the breakout stage of its symmetrical triangle structure. It was eyeing a rally toward $3.80 by January’s end, which amounts to a 25% upside from the current price levels.

Conversely, a pullback below the triangle’s upper trendline, followed by a deeper correction below the lower trendline, may invalidate the bullish setup. Instead, XRP will likely risk dropping toward its 200-day EMA (the blue wave) at around $1.32.