ADA and XRP are experiencing significant shorting activity amid the ongoing market downturn. However, analysts believe that this could actually serve as a catalyst for a bullish reversal.
According to analysts, crypto assets typically have about 8-10 months to return to a bullish trend after reaching their previous peak. This suggests that XRP’s rally is long overdue.
Both Cardano (ADA) and Ripple’s XRP have followed the bearish direction of Bitcoin (BTC), which has broken a crucial support level and is now trading below $64k. In the last 24 hours, ADA has declined by 2.4% and is currently trading at $0.38, while XRP has declined by 1.4% and is trading at $0.49.
ADA and XRP have been among the most notable altcoins experiencing heavy shorting activity. However, Santiment explains that the liquidation of these short positions could potentially lead to substantial price increases.
The Binance Funding Rate for Cardano stands at -0.013743, indicating the dominance of short positions. Derivatives data from Coinglass also confirms this, with a long/short ratio for ADA of 0.9755. Interestingly, the Binance long/short ratio for accounts shows a reading of 2.51, despite the significant surge in shorts.
A similar pattern is observed with XRP, as the Binance Funding Rate stands at -0.002935, indicating the predominance of short positions. Coinglass data also confirms this, with a long/short ratio for XRP of 0.9623. However, Binance’s long/short ratio for accounts shows a reading of 2.98, suggesting that more traders on the platform are optimistic about an upsurge.
Analysts explain that increasing shorting activity often leads to short covering when upward movements occur. This can result in a sudden and substantial price increase as shorts buy back the asset to cover their positions. This bullish outlook is supported by a previous analysis of ADA’s and XRP’s 30-day Market Value to Realized Value (MVRV) ratios.
Santiment reports that the 30-day MVRV of XRP is at -3.5, indicating a mildly bullish sentiment. Meanwhile, the 30-day MVRV of ADA is even lower at -12.6, also considered bullish. This aligns with crypto analyst Alan Santana’s analysis, which suggests that all assets have 8-10 months to experience a significant surge after their previous peak.
Santana points out that the last peak of XRP was in July 2023 when it responded strongly to a ruling by Judge Analisa Torres. Since then, XRP has gone without a bullish wave for about 11 months. However, Santana remains optimistic and predicts a 100% move for XRP in the near future.