What’s really behind XRP’s recent 170% rally

Between Jan 30 and the early hours of Feb 1, the price of XRP surged 147%, reaching $0.76. It is its highest level in two months. The move appears to have been driven by r/Satoshistreetbets, a derivation of r/Wallstreetbets.

Speculative investing based on social media groups seems to be becoming a trend. Let’s take a look at the triggers that could have catalyzed XRP price’s recent surge. 

TheTie, an alternative data provider for digital assets, focused on social analytics, showed how much significant impact active Twitter users had on the price of XRP.

Even Gene Simmons, the legendary musician of the rock band KISS, told his nearly 900,000 followers that he doesn’t recommend any of them. However, he bought Dogecoin, XRP, and others.

Was there little interest behind this move?

Knowing exactly what caused investors to accumulate in XRP could uncover a set of criteria. That criteria can then be applied to other cryptocurrencies.

Hedge funds with significant short positions are what attracted investors to the shares of GameStop and AMC. By coordinating a surge in these companies, buyers knew that would force sellers to sell short.  And then lead to triggering a strong rally.

A look at the relationship between Bitfinex long to short contracts shows that there are currently $124 million total margin trades combining their USD and BTC based markets. Although that number rose to $95 million a month ago, it is more important to focus on the percentage that favours shorts.

The ratio on Jan 29 showed that long contracts were favoured by 180%. This is the opposite of what is necessary for a bearish contraction. Also, in nominal terms, those short margin positions of $25 million were not significant to the average daily volume of $1.55 billion XRP.

On the other hand, the futures markets held an open interest of USD 277 million. That is flat compared to the previous month. Still, unlike margin markets, buyers and sellers are paired at all times.

Despite the sell-off caused by the recent 147% rally, XRP’s open interest increased in nominal terms due to its price increase. One must focus on the funding rate of the futures contracts. Particularly, to understand whether those traders have been using excessive leverage on either side.

When the short-sellers demand the most leverage, the finance rate turns negative. Hence, those traders will be the ones paying the fees.

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