XRP futures open interest drops 37% — Are altcoin traders jumping ship?

XRP (XRP) experienced a sharp 25.7% correction over the seven days ending on Feb. 6. However, the $2.30 support level saw strong buying interest whenever it was tested. The 8% daily gain on Feb. 7, which brought XRP to $2.50, has not been widely celebrated, as professional traders have significantly reduced their leveraged positions.

The total XRP futures open interest, which reflects the overall demand for these contracts, has fallen by 37% since reaching its peak on Jan. 15.

It’s important to note that in derivatives markets, long (buy) and short (sell) positions are always matched. Therefore, a reduction in the total number of contracts should not be seen as a purely bearish signal. However, a growing interest from institutional investors is generally seen as positive, as it tends to increase liquidity and attract more trading capital.

To determine whether XRP whales have turned bearish, one should analyze the premium on monthly futures contracts. In neutral markets, these contracts typically trade at a 5% to 10% annualized premium to compensate for the longer settlement period.

Two key points stand out when analyzing the XRP futures data. First, the premium quickly reclaimed the 5% neutral threshold after the flash crash to $1.76 on Feb. 3. More importantly, the annualized futures premium has returned to the bullish 10% level, even though XRP is trading 25.5% below its all-time high of $3.40. 

Still, XRP is heavily influenced by retail trading. The aggregate open interest in perpetual contracts (inverse swaps) on platforms such as Binance, Bybit, and Bitget is approaching $2.5 billion. To understand whether the so-called ‘XRP army’ is weakening, one should examine the futures funding rate, which typically exceeds 1.9% per month in bullish markets.

Currently, the XRP perpetual contracts funding rate stands at 0.2% per month, at the lower end of the neutral range and nearing bearish territory. While this is an improvement from the level observed on Feb. 3, it remains significantly lower than the 0.9% recorded two weeks ago. From a derivatives perspective, this suggests a lack of optimism among retail traders.

XRP adoption and financial inclusion claims lack evidence

XRP price movements are often closely tied to news and events, even rumors without solid evidence. For example, some influencers have claimed that Ripple’s CEO, Brad Garlinghouse, is close to being appointed to the Trump administration’s cryptocurrency council, despite the lack of credible sources to support this claim.

Other influencers have suggested that traditional banks may “become nodes in the Ripple network to access XRP.” This claim is highly questionable, as Ripple has already shifted its focus to integrating tokenized assets into its network.

Whether there is a coordinated effort to create the illusion of XRP adoption within traditional finance or its inclusion in government strategic reserves, there is no concrete evidence to support these ideas. XRP remains a highly speculative asset, with less than $100 million in total value locked (TVL), according to DefiLlama data.

Related: Potential candidates for Trump’s crypto council revealed: Report

Although XRP may retest the $3 level, no fundamental changes have occurred, except for the emergence of a more crypto-friendly government. This development increases the chances of success in Ripple’s ongoing court cases but does not directly impact the price of XRP.

The primary legal case directly involving Ripple is the US Securities and Exchange Commission lawsuit, which revolves around whether certain XRP sales constitute unregistered securities offerings. This case is currently in the appeals stage. However, the outcome of the court ruling is unlikely to significantly alter the trajectory of XRP adoption or the public ledger network used by the banking sector.

This article is for general information purposes and is not intended to be and should not be taken as legal or investment advice. The views, thoughts, and opinions expressed here are the author’s alone and do not necessarily reflect or represent the views and opinions of Cointelegraph.