Is XRP overvalued? That’s the question the broader market has been asking since the altcoin began its massive rally in November.
While some were hoping for a reversal in the XRP price rally, no major correction has occurred. However, according to this on-chain analysis, the token may soon become overvalued when compared to the general market situation.
Ripple Token Faces Major Risk
About a month ago, XRP broke the $1 barrier for the first time in a long time. Some market watchers thought it was a false breakout. However, that sentiment turned out to be wrong, as it is now trading at $2.36.
Although several predictions suggest that the token’s value could rise towards the $5 mark, some on-chain indicators suggest that it could be a challenge. One indicator that aligns with this hypothesis is the market cap to transactions (NVT) ratio.
The NVT ratio measures the growth of an asset’s market value relative to the growth of transactions. When the ratio is low, it means that transactions on the network are growing faster than the market value, which is positive and indicates that the price is undervalued.
On the other hand, a high NVT ratio indicates that the market cap is growing at a faster pace, which pulls it into more overvalued territory. According to Santiment (shown above), XRP’s NVT ratio jumped to a high reading of 477.
Another indicator that carries a similar sentiment is the Price-Daily Active Addresses (DAA) variance. The DAA price measures the level of price growth relative to user engagement. When the metric increases, it means that user engagement is supporting the price movement, which is positive.
However, as of this writing, the price of DAA has dropped by 326.13%, indicating that the number of XRP wallets interacting with the token has decreased. If this trend continues, the price of XRP could drop below $2.
XRP Price Prediction: Momentum Remains Bearish
On the 4-hour chart, XRP price tried to reach $2.40. However, the altcoin faced resistance at $2.35, which led to a pullback to $2.31. Looking at the Moving Average Convergence Divergence (MACD) shows that the 12- and 26-period exponential moving averages have fallen into the negative territory.
This decline indicates bearish momentum around the token. If the momentum continues to decline, the price of XRP could drop to $2.05.
Is XRP overvalued? These analyses suggest that it might be. In a strong bearish scenario, the token could drop to $1.90. Conversely, increased buying pressure could push XRP to $2.73.