XRP downside risks escalate amid muted retail interest

XRP supply in profit shrinks as risk-off sentiment prolongs

The Supply in Profit metric from Glassnode shows the absolute volume of XRP's circulating supply currently held at an unrealized profit. According to the chart below, this volume averages 44 million XRP on Friday, down from a peak of 64 million XRP in mid-July. XRP's supply in profit reached this level in early November 2024, highlighting a one-year low.

XRP Supply in Profit | Source: Glassnode

The steady decline from mid-July points to a broadening wave of unrealized losses among holders, affecting other factors such as sentiment, liquidity, and price performance.

Still, the decline could signal a turnaround, as the supply available for sale diminishes, suggesting sentiment is bottoming. Moreover, investors could begin seeking new opportunities, increasing demand for XRP and paving the way for a short to medium-term recovery.

Meanwhile, retail demand for XRP has not recovered since mid-October, characterised by a weak derivatives market. CoinGlass data shows the futures Open Interest (OI) averaging $3.78 billion on Friday, slightly up from $3.67 the previous day but down from $4.17 billion posted on November 1.

A steady increase in OI is required to support XRP's short-term recovery, indicating that investors have confidence in the token and the ecosystem and are willing to increase their risk exposure.

XRP Futures Open Interest | Source: CoinGlass

Technical outlook: XRP bulls defend key support

XRP is trading above $2.25 at the time of writing on Friday as bearish sentiment remains sticky across the cryptocurrency market. The token's position below key moving averages, including the 50-day Exponential Moving Average (EMA) at $2.53, the 200-day EMA at $2.57 and the 100-day EMA at $2.63, reinforces the bearish grip.

Sellers have the upper hand with the Relative Strength Index (RSI) at 43 and extending its decline. Lower RSI readings suggest that bearish momentum is building, increasing the odds of a prolonged downtrend.

A short-term support lies at $2.24, which was tested earlier in the day. If the decline extends, XRP will seek liquidity at $2.07 and $1.09, tested on November 4 and in mid-June, respectively. Still, a recovery could ensue if investors buy the dip, building a tailwind for XRP and eyeing highs above the 50-, 200-, and 100-day EMAs.

Cryptocurrency metrics FAQs

What is circulating supply?

The developer or creator of each cryptocurrency decides on the total number of tokens that can be minted or issued. Only a certain number of these assets can be minted by mining, staking or other mechanisms. This is defined by the algorithm of the underlying blockchain technology. On the other hand, circulating supply can also be decreased via actions such as burning tokens, or mistakenly sending assets to addresses of other incompatible blockchains.

What is market capitalization?

Market capitalization is the result of multiplying the circulating supply of a certain asset by the asset’s current market value.

What is trading volume?

Trading volume refers to the total number of tokens for a specific asset that has been transacted or exchanged between buyers and sellers within set trading hours, for example, 24 hours. It is used to gauge market sentiment, this metric combines all volumes on centralized exchanges and decentralized exchanges. Increasing trading volume often denotes the demand for a certain asset as more people are buying and selling the cryptocurrency.

What is the funding rate?

Funding rates are a concept designed to encourage traders to take positions and ensure perpetual contract prices match spot markets. It defines a mechanism by exchanges to ensure that future prices and index prices periodic payments regularly converge. When the funding rate is positive, the price of the perpetual contract is higher than the mark price. This means traders who are bullish and have opened long positions pay traders who are in short positions. On the other hand, a negative funding rate means perpetual prices are below the mark price, and hence traders with short positions pay traders who have opened long positions.