Ripple (XRP) Shows Signs of Recovery, But On-Chain Data Raises Concerns
Ripple (XRP) is experiencing a recovery, mirroring the performance of other major cryptocurrencies. On Friday, it traded above $2.80. Technical analysis suggests a bullish outlook for XRP, with the potential to surpass the critical psychological resistance level of $3.00.
However, on-chain data presents a mixed picture. There are indications that the upward trend might be weakening as investors either take profits or move their XRP to exchanges, potentially preparing to sell.
Key Metrics to Watch
Understanding metrics like Exchange Balance and Total Supply in Profit is crucial for gaining a comprehensive view of XRP’s future direction, especially as risk appetite increases.
What’s Next for XRP?
XRP has been on an upward trajectory since its June low of $1.90, gaining nearly 50%. This price increase can be attributed to a growing appetite for risk and a stronger derivatives market, as evidenced by the recovery of futures open interest (OI) to $5.9 billion from $3.5 billion on June 23.
Spot market volume, however, is showing signs of cooling off. Decreasing activity in the spot market often suggests waning interest in XRP, which could hinder further price increases.
Exchange Balance and Potential Selling Pressure
Simultaneously, investors are increasing transactions to exchanges. The Exchange Balance metric has risen by 2.9% to 3.5 billion XRP. An increase in exchange balance typically signals incoming selling pressure as holders prepare to sell or trade their XRP. If supply outweighs demand, this could lead to a price drop or consolidation.
Total Supply in Profit: A Warning Sign?
Furthermore, an increase in the total supply that is in profit could predispose XRP to downward pressure, as holders may be tempted to sell to realize gains. A similar trend in May saw the supply in profit approach 62 billion XRP, followed by a significant sell-off, limiting price action to $2.65 and extending the decline to $1.90 in June.
Technical Outlook: XRP Completes Technical Pattern Breakout
XRP’s price rally has surpassed $2.76, a target of an Inverse Head and Shoulders (H&S) pattern, which was validated when bulls broke above the neckline resistance at $2.33.
The cross-border money remittance token is currently trading at $2.80, supported by a rising trading volume of $165 million. The Money Flow Index (MFI), which tracks the amount of money flowing into or out of XRP, also supports this bullish outlook, remaining at 89.
However, the overbought Relative Strength Index (RSI) at 88 suggests that the rally might cool off before continuing towards $3.00. Caution is advised, and preparation for a potential trend reversal is necessary. Profit-taking and the risks highlighted by on-chain data are likely to be the main drivers of any pullback.
Key Takeaways:
- XRP is showing signs of recovery, but on-chain data suggests potential headwinds.
- Rising exchange balances and increasing supply in profit could lead to selling pressure.
- Technical indicators are mixed, with a bullish pattern breakout but an overbought RSI.
Cryptocurrency Metrics – Frequently Asked Questions
The developer or creator of each cryptocurrency decides the total number of tokens that can be minted or issued. Only a certain number of these assets can be minted through mining, staking, or other mechanisms. This is defined by the algorithm of the underlying blockchain technology. Since its creation, a total of 19,445,656 BTC have been minted, which is the circulating supply of Bitcoin. On the other hand, the circulating supply can also decrease through actions such as burning tokens or mistakenly sending assets to addresses of other incompatible blockchains.
Market capitalization is the result of multiplying the circulating supply of a given asset by its current market value. In the case of Bitcoin, the market capitalization in early August 2023 exceeds $570 billion, which is the result of the more than 19 million BTC in circulation multiplied by the price of Bitcoin, which is around $29,600.
Trading volume refers to the total number of tokens of a specific asset that have been traded or exchanged between buyers and sellers within a set trading schedule, for example, 24 hours. It is used to measure market sentiment, this metric combines all volumes from centralized and decentralized exchanges. Increased trading volume often denotes demand for a particular asset, as more people are buying and selling the cryptocurrency.
The funding rate is a concept designed to encourage traders to take positions and ensure that perpetual contract prices match those of spot markets. It defines a mechanism of exchanges to ensure that future prices and periodic price payments converge regularly. When the funding rate is positive, the price of the perpetual contract is higher than the market price. This means that traders who are bullish and have opened long positions pay traders who are in short positions. Conversely, a negative funding rate means that perpetual contract prices are lower than the reference price, so traders with short positions pay traders who have opened long positions.
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