The current market breakdown could go either way. 

On one hand, this can lead to a further capitulation phase for the market as key support levels come under threat. However, it could also be seen as a bear trap for those short sellers who have stretched their positions too far. Notably, XRP seems to be at the forefront of this debate.

As the chart below shows, Bitfinex XRP shorts have spiked by 652.89% to 468.2 million. Given the weakening technical momentum, this bearish positioning is not entirely surprising. The altcoin has seen five straight  weekly lows and broken below the $1.20 support level, with its price now approaching the $1 mark.

Meanwhile, XRP’s relative strength is adding another layer of pressure. 

After breaking out of its five-week consolidation, the XRP/ETH pair has dropped over 3% this week. This indicates that XRP is losing value to Ethereum, as traders are showing preference towards ETH in this current bear trend. This relative weakness in XRP is therefore contributing to the bearish sentiment.

From a technical standpoint, betting on more Ripple [XRP] downside, with $1 as the next target, looks like a calculated move rather than a random bet. However, on-chain signals are telling a different story, keeping the possibility of a bear trap on the table.

XRP supply shock signals challenge bearish bets 

XRP is flashing textbook signs of a potential supply shock.

On the 5th of September, an estimated 13.24 million XRP was taken off exchanges, limiting the amount available to sell (as noted by one analyst). Moreover, whale holdings have increased by nearly 60 million XRP over the past week. While it is unclear whether these are the same tokens that left exchanges, both signals point to growing accumulation by large holders. 

The key takeaway? XRP’s Binance Scarcity Index has hit its highest level since 2022. As shown in the chart below, the index has been deeply negative throughout September and October before making a sharp move higher in recent days. The index is now extremely positive, and it is one of its largest movements in almost 4 years. This indicates that XRP supply is becoming tighter on Binance.

Ultimately, XRP is showing a clear split between its technical and on-chain signals. 

While negative momentum and increasing short interest indicate that there is more downside to come, market outflows, whale accumulation, and reduced Binance supply suggest that selling pressure may be losing steam. If these supply patterns remain, then those shorting the market hoping for a fall to $1 may be caught off guard, turning the current bearish setup into a potential bear trap. 

Final Summary

  • Rising XRP shorts and weak price action point to a possible drop toward $1.

  • Whale buying and exchange outflows suggest supply is tightening, raising the risk of a bear trap.

Rising XRP shorts and weak price action point to a possible drop toward $1.

Whale buying and exchange outflows suggest supply is tightening, raising the risk of a bear trap.