On-chain and technical indicators point to potential downward pressure, raising questions about the token’s short-term trajectory. Where are the XRP bulls?

Profit-Taking and Divergent Exchange Flows Signal Weakness

Recent market activity reveals that XRP investors have realized over $500 million in profits within the past two days. This selling pressure is driven primarily by short-term holders who are reaping gains. On-chain metrics show an uptick in the dormancy of circulation across 90-day, 180-day, and 365-day periods, further supporting that traders are cashing in on recent price spikes.

Ripple’s XRP price has the potential of a pullback below the $3 support level. Source: Anon-Ron117/TradingView

Apart from selling pressure, the open interest of XRP has been drastically shaved off. The open interest, a measure of total outstanding contracts in the derivatives market, plunged from its ATH of 2.34 billion XRP to 2.14 billion XRP. This decrease indicates that traders are squaring up their positions and could have lost conviction for an extended price rally.

While XRP’s spot market provides mixed signals, exchange flow data offers further insights. Net outflows on platforms like Binance and Kraken indicate that buying activity has been dominant recently. However, net inflows on exchanges such as Coinbase and Bitstamp suggest simultaneous selling activity. These contrasting trends highlight the market’s uncertainty as traders navigate the current volatility.

Technical Indicators Suggest Bearish Momentum

XRP’s technical indicators also point to weakening bullish strength. A doji candlestick appeared midweek, signaling market indecision, which is often a precursor to a trend reversal. Following the doji, XRP experienced a 3% pullback, aligning with other bearish signals from the Moving Average Convergence Divergence (MACD) and the Awesome Oscillator (AO). Both indicators have posted consecutive lower highs above their neutral levels, suggesting a potential shift toward bearish momentum.

The XRP price has been consolidating in between $2.80 and $3.35 since January 17. Source: Jflanagan229/TradingView

If XRP fails to hold support above the $2.90 level, analysts predict a further decline to $2.62, aligning with the 50-day Simple Moving Average (SMA). This scenario would mark a near 20% drop from current levels. However, a breakout above the descending trendline resistance from January 16 could invalidate the bearish thesis and propel XRP to new highs above $3.55.

Regulatory Moves Amid Price Pressure

XRP’s struggles come despite positive regulatory developments in the U.S. President Donald Trump recently signed an executive order creating a Presidential Working Group on digital assets. This group is supposed to develop a comprehensive regulatory framework for digital assets and explore the creation of a national digital asset stockpile. The executive order also bans the creation of a CBDC in the United States, proving that the administration will focus on decentralized digital assets.

Source: Amelie via X

Although this is a major policy change, it has not provided any immediate support for the price of XRP. That is because, per market sentiment, traders are more keen on short-term technical indicators and profit-taking than long-term prospects from changes in regulation.

Challenges Ahead for XRP

XRP’s struggle to continue its uptrend increases. According to the on-chain data, it looks like the token is overvalued, with an MVRV ratio of more than 400%. Prices at this level mostly invite profit-takers, who strengthen the selling pressures. Besides, other metrics, such as Balance of Power, evidence that selling pressure prevails over buying interest at the moment.

Ripple (XRP) price chart. Source:XRP Liquid Index (XRPLX) via Brave New Coin

It could shed off another 20% with the upside development of bearish momentum. Investors closely watch key support levels: $2.90 and $2.62. Meanwhile, the wider cryptocurrency market continues to witness stress characterized by notable outflows and generally lower trading volume in major markets.

Positive news for Ripple and XRP comes from the news that XRP will soon be exempt from capital gains tax for U.S. crypto investors according to crypto tsar, David Sacks. Additionally, Sacks says NFTs and Meme coins are collectibles, not securities.

In conclusion, XRP’s short-term outlook appears uncertain, as technical indicators and market sentiment suggest further declines are possible. However, regulatory developments and long-term investor optimism could provide support for the token in the months ahead. Traders and investors are advised to remain cautious and stay updated on market trends and regulatory changes that may impact XRP and the broader crypto market.