XRP Open Interest hits $3.9B, then drops fast: What happens if $3.2 breaks?

Key Takeaways

XRP sits in limbo as shorts dominate Futures, exchange inflows rise, and Open Interest remains elevated, raising the odds of either a short squeeze breakout or a deep correction toward $2.90.

After facing rejection at $3.50, Ripple [XRP] has traded inside a tight range, consolidating between $3.00 and $3.20 over the last four days.

However, derivatives market activity suggests that a bigger move could be brewing underneath this calm.

Open Interest spikes, but so does volatility

According to CryptoQuant, Open Interest on Binance’s XRP derivatives reached an all-time high earlier this week, touching nearly $3.9 billion before slipping to $3.08 billion at press time.

Source: CryptoQuant

This surge marks a clear influx of new capital, signaling strong speculative activity.

Typically, a rising OI during sideways price action implies the market is gearing up for a large liquidation-driven breakout in either direction.

More traders bet against XRP

Surprisingly, when we examine the derivatives market, it seems investors rushed mostly to take short positions. 

CoinGlass data showed the Long/Short Ratio hovering around 0.96 as of the 27th of July, meaning more traders are opening short positions. Shorts accounted for 50.77% of all XRP Futures, while longs trailed at 49.23%.

Source: CoinGlass

Such an imbalance suggests growing expectations of downside movement. However, this level of pessimism can sometimes act as fuel for a short squeeze if the price reverses upward unexpectedly.

Exchange flows hint at profit-taking

On top of that, Exchange Netflows for XRP remained positive for two straight days.

Source: CoinGlass

This indicates that more tokens are flowing into exchanges, typically a sign of selling activity.

At press time, Netflow stood at $1.28 million, slightly up from $1.21 million the day before. If demand doesn’t offset this sell pressure, XRP could face difficulty breaking out of its consolidation zone.

Bear trap or short squeeze setup?

According to AMBCrypto’s analysis, XRP remains stuck within a consolidation as demand for shorts absorbs selling pressure from profit takers. 

However, increased demand for short positions poses the risk of a short squeeze, especially if prices make any slight upward movement.

This is because, as investors pump capital into Futures, it stabilizes the demand side, putting upward pressure on prices.

Additionally, the market tends to bait shorts before reversing the trend. Thus, if capital inflow persists, XRP will likely breach $3.2 and reclaim $3.5, resulting in significant liquidations for XRP shorts.

However, if profit takers continue to exit the market, downward pressure will cause long positions to be liquidated, and XRP will likely drop to $2.90.