XRP (XRP) fell more than 12% on July 5, hitting a three-month low of $0.381. The cryptocurrency’s decline followed other areas of the cryptocurrency market, due to signs of a massive selloff in the Bitcoin (BTC) market and the U.S. Securities and Exchange Commission’s (SEC) response to Ripple.
Mt. Gox, German Government Causes Market Panic
Today’s XRP price drop is largely due to reports that the German government is liquidating hundreds of millions of dollars worth of Bitcoin seized from criminals while also holding $2.4 billion worth of the cryptocurrency in reserve.
In addition, the now-defunct Mt. Gox exchange has begun to return more than 140,000 BTC to creditors, a development that has sparked speculation about how much of the $8 billion worth of Bitcoin could be sold off.
Smaller coins such as XRP, Ether (ETH), and BNB (BNB) have seen their market caps drop significantly due to Bitcoin shorting risks due to their high correlation with BTC.
For example, as of July 5, the daily correlation coefficient between XRP and BTC was 0.94, compared to a perfect score of 1. This could be due to traders liquidating their altcoin positions to cover losses in the Bitcoin market.
SEC Remains Request for $2 Billion Fine
Fundamentally, today’s XRP drop is due to Ripple’s July 3 filing of a “supplemental notice of authority” with the SEC, in which the SEC denied Ripple’s request to reconsider its $2 billion fine, despite its recent legal setback against Binance.
In particular, the SEC lost a case against Binance after claiming that the secondary market sale of Binance’s native token, BNB, violated U.S. securities laws. The agency lost a similar claim against Ripple in 2023, but still fined the company $2 billion.
Ripple’s defense team declined to pay the fine, instead suggesting that it be reduced to $10 million. The SEC’s stance on the $2 billion demand has added to uncertainty in the XRP market, contributing to a 20% drop since the filing.
Over $7 million worth of XRP long positions have been liquidated.
Today’s XRP price decline was further exacerbated by massive long liquidations in the derivatives markets.
As of July 5, the XRP futures market has seen $7 million worth of long positions liquidated in the past 24 hours, compared to just $298,370 worth of short positions liquidated in the same period.
When long positions are liquidated, it means that bullish traders have to sell their positions. This sudden selling puts downward pressure on the price, accelerating the decline.
Related: Bitcoin Drops Below $54,000 as Crypto Liquidations Near $665 Million
Additionally, the XRP price is accompanied by a decline in open interest and funding rates.
For example, as of July 5, the total number of outstanding XRP contracts was approximately $524.74 million, down from $577.74 million a day earlier. Meanwhile, XRP’s funding rate fell from 0.13% per week to 0.05% per week.
The decline in open interest indicates that traders are closing out positions, while the decline in funding rates shows a decrease in demand for long positions and increased caution among XRP traders.
This article does not contain any investment advice or recommendations. All investment and trading moves involve risk, and readers should conduct their own research when making decisions.