Bitcoin has recently surpassed a price point it hadn’t reached in several months, sparking a significant chain reaction that propelled XRP well ahead of the broader market. The burning question now is whether this momentum will continue…
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XRP (CRYPTO:XRP) has experienced a remarkable increase of 6.4% as of September 21, now trading at $1.47. This rise follows Bitcoin (CRYPTO:BTC) breaking through the $84,000 threshold, which saw it climbing by 5.3% to reach $84,702—its highest level since January 31. Other cryptocurrencies also benefited from this upswing, with Ethereum rising by 5.4%, Solana increasing by 6.6%, and Zcash gaining 4.5%, all of which contribute to a generally bullish market sentiment.
The surge in XRP’s price is primarily a consequence of Bitcoin’s ascent, which caused exchanges to liquidate around $300 million of losing short positions within an hour. XRP accounted for a significant proportion of these short positions that were unwound during this buying spree. Nonetheless, despite the 6% increase, XRP remains down 1.5% over the past month and about 20% year-to-date, indicating that this daily gain hasn’t significantly altered its overall trajectory.
Unpacking the $300 Million in Liquidations
Bitcoin’s increase was the catalyst for these events. In the early European trading hours on September 21, Bitcoin was around $82,000. With a dip in oil prices and a rise in stock futures, the coin quickly soared to $84,700, a level unseen in almost eight months. As Bitcoin gained value, many short positions could not maintain their required margins, leading exchanges to buy back coins at market prices to cover those positions—a phenomenon known as short liquidation.
In essence, when a trader shorts an asset, they borrow it and sell it, anticipating a repurchase at a lower price. If the price unexpectedly rises and they cannot mitigate their losses, exchanges intervene to repurchase the asset, further increasing the price. According to CoinGlass, during the hour Bitcoin surged past $84,000, approximately $313 million in positions were liquidated, with shorts constituting 96% of that total. Over the course of 24 hours, about $710 million was liquidated, with shorts making up 86% of that figure.
Why XRP Outperformed Bitcoin
The forced buying benefits all cryptocurrencies with significant short positions, but XRP stood out for several reasons. Firstly, XRP’s funding rate had been negative for over a week, meaning that traders betting against XRP had to pay extra fees to maintain their positions, indicating a crowded short market. Secondly, XRP had been underperforming recently, prompting traders betting against it to gather sizable positions that became vulnerable during Bitcoin’s rise.
This explains why XRP increased by 6.4%, while Bitcoin rose by 5.3%. Solana also posted a gain of 6.6%, partially due to its own preceding upward trend. However, XRP’s current rise is mainly attributed to its positioning and the influence of Bitcoin’s movements.
XRP’s Year-to-Date Status
Despite this 6% growth, XRP is still down 20% year-to-date and has remained in the negative territory over the last month, with the coin dropping 8% just a week prior. While it has shown a 4.6% increase over the past week, this rebound hasn’t completely offset its recent losses.
On a positive note, XRP is currently trading above its 200-day moving average of $1.35 and its 20-day average of $1.32. Traders pay close attention to these averages since maintaining a position above them can sustain buyer interest. Key support levels for XRP include $1.41, $1.35, and $1.30, while resistance levels are at $1.50, $1.55, and the August high of $1.70.
Moreover, the 50-day moving average is on the rise and may soon cross above the 200-day average, indicating a bullish trend referred to as a golden cross. Nonetheless, once short positions are cleared, buying pressure might diminish.
Will XRP Maintain Its Recent Gains?
Probably not based solely on this alone. A short squeeze involves purchasing cryptocurrency using funds derived from other traders’ losses, and once those positions are closed, the buying momentum ceases. For XRP to remain at $1.47, Bitcoin needs to sustain its position above $84,000 until conventional buyers step in to take the place of those liquidated. However, Ripple has a scheduled event that could negatively impact this. On October 1, the company plans to release its monthly allocation of one billion XRP from escrow, which typically affects the price unfavorably in the days leading up to it.
So, what’s behind XRP’s increase? The answer lies largely in exchanges enforcing the liquidation of $300 million in short positions triggered by Bitcoin crossing the $84,000 barrier, with XRP holding the most congested short positions among major cryptocurrencies. The downside is that there appear to be no new buyers supporting this price uptick. If XRP manages to close above $1.50, it may target $1.55 and $1.70. Conversely, if it dips below $1.41, the pressure from the squeeze will dissipate, making $1.41 a crucial level to monitor.
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