Will XRP shorting activity serve as 'rocket fuel' for an explosive rally?

In the midst of recent cryptocurrency market turbulence and sell-offs, XRP Ledger (XRP), backed by Ripple Labs, is pushing to regain bullish momentum. 

On-chain analytics platform Santiment has highlighted a factor that could contribute to further price increases for XRP. Despite recent declines in the crypto market, heavy shorting activity against XRP might paradoxically serve as “rocket fuel” for a price rise.

Santiment revealed that XRP, along with Cardano (ADA), is among the most heavily shorted altcoins following their relief bounces. This heavy shorting is seen as a positive sign for patient bulls. The liquidation of these short positions could provide the necessary momentum for XRP to rise higher.

XRP Liquidation Heatmap. Source: CoinGlass

Notably, strong support zones are identified between $0.48 and $0.50, while resistance is noted near $0.52. These levels are crucial, as movements beyond these points could trigger significant liquidations.

Recent data from CryptoQuant highlights a significant increase in Open Interest (OI) for XRP. Rising open interest typically indicates that more investors are opening positions with the expectation of price increases. 

This usually results in higher liquidity, benefiting traders by providing tighter bid-ask spreads and reducing slippage, thus enhancing overall market efficiency.

Analyst predictions

Santiment’s data shows XRP’s 30-day MVRV (Market Value to Realized Value) at -3.5%, suggesting a mildly bullish sentiment. This negative MVRV indicates that investors are, on average, holding losses, often a precursor to price recovery. Recently, XRP has seen a modest 0.42% gain, trading at $0.4932.

? The lower a cryptocurrency's 30-day MVRV is, the higher the likelihood we see a short-term bounce:Bitcoin: -4.0% (Mild Bullish)Ethereum: -4.3% (Mild Bullish)XRP: -3.5% (Mild Bullish)Dogecoin: -16.7% (Very Bullish)Toncoin: -0.6% (Neutral)Cardano: -12.6% (Very Bullish) pic.twitter.com/zHGg4t3qo1

Market analysts are optimistic, with analyst Cryptobilbuwoo noting a correlation between XRP’s price and altcoin dominance (ALT.D). His analysis suggests XRP could surge to $2.71, indicating a potential rebound.

Additionally, Ripple’s ongoing SEC lawsuit and developments like Ethereum Virtual Machine (EVM) compatibility on the XRP Ledger could influence long-term valuation.

XRP price movements

XRP 7-day price chart. Source : Santiment

Currently, XRP is trading at $0.49, with a 1.96% decrease over the past 24 hours. Despite this decline, the setup suggests a potential bullish reversal. The significant shorting activity and high liquidation leverage create a scenario where a short squeeze could lead to an explosive price rally.

Therefore, monitoring key support around $0.48 to $0.50 and resistance near $0.52 will be crucial for traders.

In conclusion, any positive news or shifts in market sentiment could lead to a short squeeze, resulting in an explosive price rally for XRP.

Disclaimer: The content on this site should not be considered investment advice. Investing is speculative. When investing, your capital is at risk.