XRP Sees Strong Surge, But Analysts Advise Caution

The XRP cryptocurrency recorded its largest daily gain since 2020 on August 19, driven by a significant short squeeze that stirred the digital asset market. The 10.4% appreciation surpassed the performance of Bitcoin and other altcoins, generating significant interest and bringing the token into the spotlight.

The Driving Force Behind XRP's Appreciation

On August 19, XRP surged 10.4%, outperforming Bitcoin, which advanced 7.13%. The token also stood out against the median 6.99% appreciation of other major altcoins, ranking third among the top eight assets, trailing only Ether (17.46%) and Solana (10.82%). This performance was superior and independent of Bitcoin's movement, with an additional 3.83 percentage points, making it the token's biggest daily jump since February 6.

The force behind this rally was a record US$2.74 billion in forcibly closed short positions across the crypto market within 24 hours. This movement, known as a short squeeze, causes short positions to be compulsorily liquidated, generating buy orders that drive prices up.

Where Institutional Money Really Went

Despite XRP's significant surge, the landscape for institutional investment presents a contrast. Spot XRP exchange-traded funds (ETFs) saw their daily flow drop from US$5.81 million to US$2.35 million, less than half, precisely on the day of the rally. In contrast, inflows into Bitcoin ETFs almost tripled, reaching US$517 million on August 19, and Ether funds also registered a significant increase. This indicates that institutions invested in the broader market rally but sidelined the token.

Historical and Chart Warnings

The history of similar movements reinforces caution. Since 2020, on 14 days when Bitcoin rose by at least 7% and XRP outperformed it, the token's median return was negative in the following seven days, with a decline of 3.84%. Only about a third of these episodes ended the week with a gain for XRP. When the forced short squeeze movement ends, conventional buyers need to take over, which has rarely happened with XRP on such days.

Furthermore, XRP's chart presents a third warning sign. While Ether recently broke out of its uptrend channel, XRP remains trapped in a downtrend channel that has limited the coin since mid-May. The 10% candle touched the upper channel line but failed to break above it. The momentum of the movement is also decreasing, with buying volume receding after the peak and open interest in futures falling 11.31% since the day of the rally. XRP remains traded approximately 17.5% below its 200-day trend compared to other major altcoins.

Analysts' Outlook for the Future

Analysts emphasize that while XRP's price surge was stronger than the market on these rally days, it remains weaker than the sector over any longer period. Any honest projection now depends on consistent demand. XRP needs ETF flows to gain strength and spot purchases to maintain its value above US$1.07. A recovery of the 100-day moving average, near US$1.15, would be the first sign of a firmer reversal. Until then, the movement has already exhausted major buying, and the US$0.98 base remains the point of attention should calm return.

With information from Exame, 21Shares.