XRP (XRP) fell by over 12% to $0.381 on July 5, its lowest level in three months. The cryptocurrency's decline mirrored downside moves elsewhere in the crypto market, led by signs of massive selloffs in the Bitcoin (BTC) market and the U.S. Securities and Exchange Commission's (SEC) response to Ripple.
Mt. Gox, German gov't trigger market panic
Today's decline in XRP's price is primarily attributed to reports that the German government is liquidating hundreds of millions of dollars worth of Bitcoin seized from criminals while still retaining $2.4 billion worth of cryptocurrencies in its reserves.
Furthermore, the now-defunct Mt. Gox exchange has commenced the long-awaited return of over 140,000 BTC to its creditors. This development has sparked speculation about how much of the $8 billion worth of Bitcoin will be sold.
Smaller coins like XRP, Ether (ETH), and BNB (BNB) have declined significantly in market capitalization due to these Bitcoin selloff risks due to their hig correlation with BTC.
For instance, as of July 5, the daily correlation coefficient between XRP and BTC was 0.94 against the perfect score of 1. This could be due to traders liquidating their altcoin positions to cover losses in the Bitcoin market.
SEC not budging on its $2B penalty demand
Fundamentally, XRP's decline today follows the SEC's July 3 filing in response to Ripple's "Notice of Supplemental Authority." In this filing, the SEC rejected Ripple's request to reconsider its $2 billion penalty despite the agency's recent legal setback against Binance.
Notably, the SEC lost its lawsuit against Binance after alleging that the secondary market sales of its native token, BNB, broke securities laws in the United States. The agency lost a similar argument against Ripple in 2023 but imposed a $2 billion penalty on the company, nonetheless.
The Ripple defense refused to pay the fine, proposing to reduce the penalty to $10 million instead. The SEC's stance on its $2 billion demand has increased uncertainty in the XRP market, contributing to a 20% decline since the filing.
Over $7M in XRP long positions liquidated
Today's XRP price decline has been further exacerbated by the massive long liquidations in its derivatives market.
As of July 5, the XRP Futures market witnessed the liquidation of over $7 million worth of long positions in the last 24 hours. In comparison, only $298,370 worth of short positions were liquidated in the same period.
When long positions are liquidated, it means that bullish traders are forced to sell their positions. This sudden selling adds downward pressure on the price, accelerating the decline.
Related: Bitcoin drops below $54K as crypto liquidations near $665M
Furthermore, the XRP price accompanies a drop in its open interest and funding rates.
As of July 5, for instance, the total number of unsettled XRP contracts was around $524.74 million, down from $577.74 million a day ago. Meanwhile, XRP's funding rates dropped from 0.13% per week to 0.05% per week.
The decrease in open interest indicates traders are unwinding their positions, with the drop in funding rates further showing reduced demand for long positions and increased caution among XRP traders.
This article does not contain investment advice or recommendations. Every investment and trading move involves risk, and readers should conduct their own research when making a decision.