Ripple (XRP) price is up 10% between Jan. 25 to Jan. 30, but in the derivatives markets, open interest has remained flat at around $380 million.
XRP price has gained 10% rising from a local bottom of $0.49 on Jan. 25 to reach $0.54 at press time on Jan. 30. However, derivative market trends show that futures traders have maintained a cautious disposition on the Ripple-backed crypto asset.
Is the sixth-largest cryptocurrency on the verge of another correction phase, or can it gain momentum to power a breakout toward $0.60?
XRP open interest stagnant despite price gains
In the spot markets, XRP price has made significant gains in the past week. A 10% rebound from $0.49 to $0.54 in the past week has sparked positive speculations of a potential rally toward $0.60. But interestingly, derivative market data trends show that futures traders do not share that optimism.
Santiment’s open interest data tracks the value of outstanding futures contracts for a specific crypto asset. Open interest serves as an indicator of market activity, liquidity and the level of investor participation.
The chart below shows that while the price is up 10% from Jan. 25 to Jan. 30, the XRP open interest has trended slightly downward from $386.7 million to $380 million during that period.
This negative divergence between open interest and the price uptrend suggest that futures traders are positioned for an imminent pullback.
When price increases and open interest moves in the opposite direction, it suggests that traders are capitalizing on the recent price bounce to secure profits.
If investors continue to close out their positions, the dearth in capital and liquidity will likely trigger an XRP price correction in the days ahead.
XRP funding rate is also trending flat
While XRP open interest has shrunk amid the recent price bound, the funding rate trends further affirms that derivative traders are leaning towards a flat price action.
Funding rate represents the fee that perpetual futures contract holders pay to keep their positions open. Positive values signal bullish sentiment while negative values mean that short traders are paying long position holders in hopes of earning bigger profits from a large price downside.
XRP Funding rate trends, although positive, have remained flat since the turn of the year. The chart below illustrates that XRP Funding rate has dipped from 0.062% to 0.009% between Jan. 2 and Jan. 30.
In concise terms, bullish XRP futures traders are now paying 85% less to keep their long positions open than they did at the start of the year.
A decline in funding rate indicates a lack of optimism among bullish traders. Without major catalysts or narratives to drive positive speculative trading activity within the XRP markets, LONG traders are paying less to keep their positions open.
Unsurprisingly, this period of funding rate decline in XRP derivative markets has coincided with a year-to-date 15% price drop.
XRP Price Forecast: Pullback toward $0.50 before major breakout phase
Drawing inferences from the decline in open interest and funding rates, XRP price appears to be on the verge of another correction phase toward the $0.50.
The Parabolic Stop and Reverse (SAR) technical indicator also affirms this stance. When the Parabolic SAR dot points above the current price, it suggests a potential reversal of the ongoing uptrend.
In this case, with the XRP Parabolic SAR dot pointing to $0.57 while the current price is $0.54, it may indicate a bearish signal.
Traders often interpret this situation as a sell signal, as it implies that the price trend might reverse and start moving downwards.
If this scenario plays out as predicted, the bulls can mount significant support at the $0.50 psychological support to avoid widespread margin call triggers.
On the flipside, the bulls can negate this bearish price forecast if they break above the $0.60 area. However, as outlined by the SAR dots above, the resistance at $0.57 could prove a bearish reversal point.