$ 420 million of leveraged long-term traders liquidated after XRP surged to $ 1.96


XRP holders could not have asked for a better year as the cryptocurrency soared nearly 800% and flirted with a $ 2 level in the early hours of Wednesday.

This robust price hike not only hits its highest level since January 2018, but also indicates that investors are not concerned about the ongoing SEC dispute over the offering of unregistered securities.

Just six hours after climbing to $ 1.96, XRP’s price crashed more than 20%. During an interview, DCG Group CEO Barry Silbert said it would be risky for exchanges and companies in the United States to re-offer XRP before receiving the blessing of the US Securities and Exchange Commission. These comments may have contributed to today’s unprecedented long-term liquidations of $ 420 million on derivatives exchanges.

XRP price in USDT on Binance. Source: TradingView

In recent weeks, the main catalysts for XRP’s rally have been victories in Ripple’s legal battle. Lawyers representing Ripple were given access to internal SEC discussions on cryptocurrencies, and more recently a court denied disclosure of the financial records of two Ripple executives, including CEO Brad Garlinghouse.

Given the recent rally, it is unlikely to be accurate to pinpoint a single reason for the price correction. Nonetheless, the impressive $ 420 million liquidations in the past 24 hours surpassed February 1 when the price of XRP crashed 46% in two hours.

XRP futures aggregate liquidations. Source: Bybt

The only logical reason behind this dizzying liquidation is the excessive leverage used by buyers. To confirm such a statement, one must analyze the funding rate of perpetual contracts. To balance their risks, exchanges will charge longs or shorts depending on how much leverage each party requires.

XRP Perpetual Futures 8-Hour Funding Rate. Source: Bybt

The graph above shows that the eight-hour funding rate is above 0.25%, which equates to 5.4% per week. While this is outrageous, buyers will be able to withstand these fees during strong price increases. For example, the current upward price movement lasted nearly three weeks, and before that, another occurred in early February.

It seems a bit extreme to blame the liquidations solely on leverage, although it certainly played a role in strengthening today’s correction.

In addition, the record growth of open interest rates in XRP futures has been accompanied by an increase in volume on the spot markets. As a result, the ultimate impact of larger liquidations should have been offset by increased liquidity.

Cascading liquidations will always take place in volatile markets. So investors should focus on how long it will take for the price to recover.

Fundamentally, an intraday drop of 10% or 20% should not be interpreted differently. The correction depends on the number of bids previously stacked against stock market order books and is not directly related to investors’ bullish or bearish sentiment.

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