XRP price spiked by 40% in the past 24 hours, recording a 52% gain at the day’s peak. Behind the surprising rally was a big short squeeze that caused massive volatility within hours.
It is evident that the upsurge was driven by a short squeeze across futures exchanges because of the speed of the rally.
It took XRP around four hours to surge from $0.2536 to as high as $0.3120. Since then, it has pulled back to around $0.3550 on major exchanges, including Binance.
What triggered the big XRP short squeeze?
Liquidations occur in the futures market when the asset’s price sees a large price movement and a long (buy) or a short (sell) position is overleveraged.
As an example, if a trader uses a 10x leverage, a trader can trade an amount that is ten times larger than the base capital. But, if the asset’s price moves against the position by 10%, the position gets liquidated and becomes worthless.
In the case of XRP, a long squeeze occurred after the U.S. Securities and Exchange Commission (SEC) filed a complaint against Ripple and two of its executives.
Excessive shorting of XRP followed as the price of XRP dropped to as low as $0.2138. But, because the market swayed severely to shorts, a short squeeze occurred on Dec. 25.
Consequently, XRP price saw a rapid upsurge within four hours. In the last 24 hours, data from Bybt.com shows that $73.5 million worth of XRP futures contracts were liquidated.
Some technical analysts predicted an XRP short squeeze, spotting the trend of excessive shorting. A pseudonymous analyst known as “Crypto ISO” said:
“XRP probably goes up. Is it prudent to short something after such a big drop with the news already out? Not sure what the bull case is really and wouldn’t touch it but also wouldn’t try and milk much more on a short. Coinbase delisting might be final hit if that happens.”
XRP remains at risk of delisting by U.S. exchanges
Analysts remain divided on XRP’s short to medium-term future. Some say that even if XRP is considered a security in the U.S., it is used globally and as such, the SEC’s case alone would not mean the end for XRP.
A pseudonymous trader known as “Credible Crypto” said that XRP is not a security in Singapore, Japan, and some other countries. He wrote:
“90% of Ripples customers are not in the US. 90+% of $XRP trading volume occurs on exchanges outside the US. $XRP is NOT a security in Singapore, the UK, Switzerland, and Japan. If you think the SEC case is sending $XRP to $0, you may not be thinking objectively. $XRP is global.”
However, the lawsuit will likely still have a major impact on the token since Ripple is a U.S.-based company and the XRP supply is managed by American citizens. Hence, Neko, a cryptocurrency investor, said it is still a big issue. He stated:
“This is true about the volume. But you also also forgetting that management of $XRP are US citizens and so is the corporation. If the SEC deems it a security, exchanges that interact with US clients will have to delist. I wouldn’t say it’s a 0 but it’s still a big issue.”