Bitcoin

What bearish contraction? Here’s what’s really behind XRP’s most recent 170% rally

Between January 30 and the early hours of February 1, the price of XRP rose 147% to hit $ 0.76, its highest level in two months. The movement appears to have been driven by r / Satoshistreetbets, a derivative of r / Wallstreetbets.

It seems that speculative investing based on social media groups is becoming a trend. So let’s look at the triggers that could have catalyzed the recent surge in XRP price.

XRP Activity on Twitter vs. Price. Source: TheTie

Data from TheTie, an alternative data provider focused on social analytics, shows how significant the impact of active Twitter users was on the price of XRP.

What bearish contraction? Here’s what’s really behind XRP’s most recent 170% rally
What bearish contraction? Here’s what’s really behind XRP’s most recent 170% rally

Even Gene Simmons, the legendary musician of the rock band KISS, told his nearly 900,000 followers::

“I don’t recommend any of these. But yes, I also bought Dogecoin, XRP and others. Make what you want out of it “.

Was there little interest behind this step?

Understanding exactly what caused investors to pile up in XRP can uncover a number of criteria that can be applied to other cryptocurrencies.

Hedge funds with significant short positions have drawn investors to GameStop and AMC stocks. By coordinating a rise in these companies, buyers knew that doing so would force sellers to sell short and create a strong rally.

One look at Bitfinex’s relationship between long and short contracts shows that there are currently a total of $ 124 million in margin trades combining their USD and BTC-based markets. Although that number rose from $ 95 million a month ago, it’s more important to focus on the percentage that prefers shorts.

Long vs. XRP shorts. Source: Bitfinex

The rate noted on January 29 favored long contracts by 180%, and this is the opposite of what it takes for a bearish contraction. Further, In nominal terms, those short margin positions of $ 25 million were insignificant for the average daily volume of $ 1.55 billion in XRP.

On the other hand, The futures markets held an open interest of $ 277 million, unchanged from the previous month. In contrast to the margin markets, however, buyers and sellers are always paired.

XRP Aggregate Futures Open Interest. Source: Bybt.com

As shown above, despite the sell-offs caused by the recent 147% rally, XRP’s open interest rose nominally due to the rise in prices. To understand whether these traders have used excessive leverage on either side, one needs to focus on the rate of funding of the futures contracts.

When (short sellers) demand the greatest leverage, the funding rate becomes negative. Hence, these traders are the ones who pay the fees.

XRP Aggregate Futures Open Interest. Source: Bybt.com

As shown above, buyers had used more leverage. Although relatively stable for the past 30 days, the last negative lending rates occurred on December 24th and 29th. Both dates mark local lows after significant price adjustments caused by the SEC’s lawsuit against XRP.

Therefore, it can be assumed that r / Satoshibets did not choose XRP because of short margin contracts or leveraged futures trading.

In addition to being a under $ 10 coin, XRP was also one of the furthest from its peak. It’s also important to note that Dogecoin (DOGE) was also trading 90% below its all-time high of $ 0.078 prior to its recent 1,000% surge.

Coins under $ 10. Source: Livecoinwatch.com

While it is undeniable that social investment groups played some role in the recent rallies in Dogecoin, XRP, GameStop, and AMC, the data doesn’t confirm the narrative that r / Satoshistreetbets pumped XRP into the altcoin due to the high level of short contracts .

The views and opinions expressed are those of the author only and do not necessarily reflect the views of Cointelegraph.com. Every investment and trade movement involves risk. You must do your own research when making a decision.

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