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$420M in leveraged long traders liquidated after XRP rallies to $1.96

  • Posted On - 2021-04-15 05:48:20

XRP holders could not have asked for a good year as the cryptocurrency rallied almost 800% and flirted with a $2 level in the early hours of 14 April.  

In addition to achieving its highest level since January 2018, this strong price rise signals that investors are not worried about the ongoing SEC "unregistered securities offering" dispute.

However, just 6 hours after rallying to $1.96, XRP value crashed by more than 20%. In an interview, DCG Group CEO Barry Silbert said it would be risky for exchanges and companies in the U.S. to relist XRP ahead of receiving the SEC's blessing. These remarks may have contributed to the unprecedented $420 million long liquidations on derivatives exchanges today.

XRP price in USDT at Binance. Source: TradingView

Over the past few weeks, the main catalysts for XRP's rally have been victories in Ripple's legal battles. Lawyers representing Ripple were permitted to internal SEC discussions related to cryptocurrencies, and more recently, a court denied the disclosure of 2 Ripple executives' financial records, including CEO Brad Garlinghouse.

Considering the current rally, pinpointing a single reason for the price correction will likely be inexact. Nevertheless, the impressive $420 million long liquidations past 24-hours exceed those of Feb. 1 when XRP price crashed by 46% in two hours.

The only logical reason behind this staggering liquidation is excessive leverage used by buyers. To confirm such a thesis, one should analyze the perpetual contracts funding rate. To balance their risks, exchanges can charge either longs or shorts depending on how much leverage each side is demanding.

Blaming the liquidations exclusively on leverage seems a bit extreme, although it certainly played its part in amplifying today's correction.

Moreover, the record growth in XRP futures open interest was accompanied by a hike in the volume at spot exchanges. As a result, the eventual impact from more significant liquidations should have been absorbed by the increased liquidity.

Cascading liquidations will always take place in volatile markets. Thus investors should focus on how long it takes until the price recovers from it.

Fundamentally, a 10% or 20% intraday drop should not be interpreted differently. The correction depends on how many bids were previously stacked at exchange order books and is not directly related to investors' bullish or bearish sentiment.

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