XRP Price Tumbles: Here’s What Triggered Today’s Decline

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On July 5, the cryptocurrency XRP witnessed a significant downturn, with its value plummeting over 12% to $0.381, marking its lowest level in three months.

This sharp decline in XRP’s value is part of a broader trend affecting the entire cryptocurrency market, which has been influenced by extensive sell-offs in Bitcoin and ongoing regulatory challenges faced by Ripple, the entity behind XRP, from the U.S. Securities and Exchange Commission (SEC).

Market Volatility and External Factors

Contributing to the market’s volatility, recent developments involving the German government and the now-defunct Mt. Gox exchange have introduced further instability.

The German government has initiated the liquidation of hundreds of millions of dollars worth of Bitcoin, which were previously confiscated from criminal activities, while still retaining around $2.4 billion in cryptocurrency assets.

XRP — German Government’s Bitcoin Holdings on July 5, 2024. Source: Arkham Intelligence

Meanwhile, Mt. Gox has begun the long-anticipated process of returning over 140,000 BTC to its creditors. This significant movement of funds has fueled market speculations regarding the extent of potential Bitcoin sales from the nearly $8 billion worth that might be reintroduced into the market.

The ripples of these developments have extended beyond Bitcoin, impacting other cryptocurrencies such as XRP, Ether, and BNB, which have all suffered declines in market capitalization.

This is primarily due to their high correlation with Bitcoin. For instance, the correlation coefficient between XRP and Bitcoin was recorded at 0.94 on July 5, signifying a strong linkage.

This high correlation often leads traders to liquidate their holdings in altcoins to cover losses encountered in the Bitcoin market, further amplifying the decline in their values.

SEC’s Stance and Market Perceptions

In the regulatory sphere, the SEC’s firm stance against Ripple has significantly influenced market perceptions. Following Ripple’s “Notice of Supplemental Authority,” the SEC filed a response on July 3, upholding its demand for a $2 billion penalty against Ripple.

This stance comes despite the SEC’s recent courtroom setback against Binance, where the regulator failed to establish that Binance’s secondary market sales of its native token BNB violated U.S. securities laws.

The SEC had encountered a similar defeat in its case against Ripple in 2023, yet it still imposed a hefty $2 billion penalty on Ripple.

Ripple’s legal team has proposed reducing this penalty to $10 million, but the SEC’s insistence on the original amount has only added to the prevailing uncertainty within the XRP market, contributing to a 20% decline in its price since the SEC’s filing.

Derivatives Market Liquidations

The adverse effects on XRP’s market dynamics were exacerbated by substantial liquidations in its derivatives market. On the same day, the XRP futures market saw more than $7 million in long positions being liquidated, compared to just $298,370 in short positions.

The liquidation of long positions forces bullish traders to exit their stakes, adding an increased supply of XRP to the market and thereby accelerating the downward pressure on its price.

Moreover, there has been a noticeable decline in both the open interest and funding rates associated with XRP. Specifically, the total number of unsettled contracts in the XRP futures market decreased from $577.74 million on the previous day to $524.74 million.

Simultaneously, the funding rates for XRP dropped from 0.13% per week to a scant 0.05%. This reduction in open interest and funding rates suggests a diminished demand for long positions and a heightened sense of caution among XRP traders, further signaling a bearish sentiment for XRP in the near term.

These multifaceted pressures on XRP reflect a challenging landscape for cryptocurrencies, where regulatory actions, market speculations, and broader economic factors intertwine to shape market dynamics.

As investors and market participants observe these unfolding events, the trajectory of XRP and similar cryptocurrencies remains tethered to both market sentiment and regulatory outcomes.

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