What short squeeze? Here’s what is really behind XRP’s recent 170% rally

Between January 30th and the wee hours of February 1st, XRP price rose 147% to hit $ 0.76, its highest level in two months. The move seems to have been fueled by r / Satoshistreetbets, an offshoot of r / Wallstreetbets.

It seems that speculative investing based on social media groups is becoming a trend. So let’s take a look at what triggers might have catalyzed the recent surge in XRP price.

XRP Twitter Activity vs. Price. Source: TheTie

Data from TheTie, an alternative data provider focused on social analytics, shows how significant the impact of active Twitter users was on XRP price.

Even Gene Simmons, the legendary musician of the rock band KISS, told his nearly 900,000 followers:

“I can’t recommend any of these to anyone. But yes, I also bought Dogecoin, XRP and others. Make it what you want. “

Was there any brief interest behind this step?

Understanding exactly what drove investors to get involved with XRP can uncover a number of criteria that may apply to other cryptocurrencies.

Hedge funds with significant short positions attracted investors to GameStop and AMC stocks. By coordinating a pump for these companies, buyers knew that short sellers would be forced to liquidate and the start of a strong rally would be triggered.

A look at Bitfinex’s long-to-short ratio reveals that there is currently a total of $ 124 million in margin trades that combine the USD and BTC-based markets. Although that number rose from $ 95 million a month ago, it’s more important to focus on the percentage that prefers shorts.

XRP longs vs. shorts. Source: Bitfinex

The rate noted on January 29 favored longs by 180%, and this is the opposite of what is required for a short squeeze. Additionally, those $ 25 million margin short positions were nominally insignificant for XRP’s average daily volume of $ 1.55 billion.

On the flip side, futures markets held an open interest of $ 277 million, unchanged from the previous month. In contrast to the margin markets, however, buyers and sellers are always coordinated.

XRP Aggregate Futures Open Interest. Source: Bybt.com

As shown above, despite the liquidations caused by the recent 147% rally, XRP’s open interest rose sharply in nominal terms due to its price increase. To understand whether these traders have used excessive leverage on either side, one should focus on the funding rate for futures contracts.

When sellers (shorts) demand more leverage, the funding rate becomes negative. Hence, these traders are the ones who pay the fees.

XRP Aggregate Futures Open Interest. Source: Bybt.com

As shown above, buyers had used more leverage. Although relatively stable over the past 30 days, negative funding rates last occurred on December 24th and 29th. Both dates mark local lows after significant price corrections caused by the SEC lawsuit against XRP.

Therefore, it can be assumed that r / Satoshibets did not choose XRP based on margin short positions or futures leveraged trades.

In addition to being a under $ 10 coin, XRP was also one of the furthest from its all-time high. It’s also important to note that before its recent 1,000% pump, Dogecoin (DOGE) was also trading 90% below its all-time high of $ 0.078.

Coins under $ 10. Source: Livecoinwatch.com

While it is undeniable that social investing groups played some role in the recent Dogecoin, XRP, GameStop, and AMC rallies, the data does not confirm the narrative that r / Satoshistreetbets XRP is due to the high level of shorts in the market have pumped altcoin.

The views and opinions expressed are those of the author only and do not necessarily reflect the views of Cointelegraph.com. Every investment and trading step is associated with risks. You should do your own research when making a decision.