The recent euphoria around XRP could quickly turn into disillusionment for optimistic investors. While the price of crypto has fallen 18% since its annual high, an expert warns of a possible “bloodbath” if Bitcoin’s dominance were to increase in the market.
A euphoric crypto market despite the decline
On December 3, XRP reached its highest level of the year at $2.85, driven by a spectacular upward movement since Donald Trump's electoral victory.
Investor enthusiasm does not appear to be waning despite the ongoing correction, as evidenced by the record $3.44 billion open interest recorded on December 5 in XRP derivatives contracts. This level far exceeds the previous record of 2 billion observed in April 2021, signaling a possible “euphoria” in the market according to Hundal.
The situation is becoming particularly worrying with the proliferation of leveraged long positions, even as the price continues to fall. “ We've seen a lot of quick buying from retailers over the past few weeks“, underlines the Swyftx analyst, pointing out the potential danger of such accumulation.
The specter of a rotation towards Bitcoin
Bitcoin’s dominance in the crypto market, currently at 55.30%, poses a growing threat to XRP holders. Industry experts anticipate a possible increase in this dominance to 60-70%, which could trigger a massive movement of capital from altcoins to bitcoin.
This potential rotation is particularly concerning due to the leverage levels currently used on XRP. A simple 7% drop in the current price, or a drop to $2.18, would be enough to cause the liquidation of long positions for an amount of $104.4 million.
The high funding rates on several exchange platforms, exceeding 50% on the annual heat map, confirm the “exuberant” nature of the current market. Only a stabilization of Bitcoin could, according to Hundal, “calm the nerves” of investors and allow a healthy recovery in spot volumes.
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