Traders are clearly nervous after XRP corrected by 54%, and the futures open interest premium flipped negative. XRP price soared 260% in April, moving from $0.57 on March 31 to $1.97 on April 14, its highest level since January 2018. The move caused XRP futures to reach an impressive $2.1 billion open interest.
However, on May 19, as cryptocurrency markets collapsed, XRP lost 60% in 4 days, liquidating $510 million long positions. The futures open interest retraced to $550 million, roughly the same level from early February when the altcoin traded near $0.40.
Investors are now questioning if XRP futures will ever be able to recover to a multi-billion market. Were April's figures inflated by excessive leverage, or is it just a matter of time until it rebounds to the previous levels? To understand if the $2.1 billion futures market was an anomaly, one needed to analyze volumes and, more importantly, their premium. This indicator measures the price gap between the futures contract prices and the regular spot market.
If some unprecedented bullishness was set in place, there's a good chance that futures open interest will take months to regain the impressive levels seen previously. Not only would traders' confidence take longer to recover, but an exaggerated premium could have been inflating the derivatives markets.
The volume of futures markets provides a hint on whether some unusual phenomena took place. By comparing this data with regular XRP spot markets, there should be a clear correlation, and futures volumes must have grown considerably to sustain the $2.1 billion open interest.
Although there was a significant spike on April 5, the movement was accompanied by regular spot exchange volumes. Moreover, the $10 billion daily turnover in futures markets is more than enough to sustain the $2.1 billion open interest.
To assess whether traders could have created an unusual open interest based on excessive optimism, one needs to analyze futures prices premium versus regular spot markets. The 3-month futures should usually trade at a 1.2% to 2.4% premium, or 8% to 15% annualized. Futures contract sellers are essentially postponing the trade, therefore requiring more money to compensate. However, during extremely bullish markets, the premium can soar well above 3.8%, which is equivalent to 25% per year.
As depicted above, June contracts traded almost 10% above regular spot exchanges. That is nothing short of spectacular as it represents a 75% annualized premium. However, these levels are completely unsustainable and transpire excessive leverage from buyers.
Cryptocurrency markets are highly volatile, and no one should bet that any event will not repeat itself. However, there is some indication that traders became so confident of themselves that they refused to reduce positions even if being paid 8% or 9% above market levels.
Therefore, there is reason to believe that the current $600 billion futures open interest and negative premium signals excessive fear and does not correctly reflect the market. XRP price has risen 294% in 2021, and the recent Ripple Labs news regarding the United States Securities and Exchange Commission lawsuit is somewhat encouraging.
Investors are not wrong to expect the futures open interest to recover the $1 billion mark as XRP holds above $0.80. However, it is unlikely that the markets will reach a 50% or higher annualized premium, let alone a $2 billion open interest anytime soon. It usually takes some time for longs to regain confidence, which is healthy for another leg up.
|#||Crypto||Prediction||Accuracy||CVIX||Price||24h||7d||Market Cap||7d price change|
|1||BTC||Bitcoin predictions||92%||4||$26 358.83||0.34%||-2.46%||$513 940 893 353|
|2||ETH||Ethereum predictions||94%||6||$1 605.45||0.57%||-1.06%||$193 030 672 715|
|3||USDT||Tether predictions||94%||1||$0.999256||-0.02%||-0.09%||$83 209 237 743|
|4||BNB||Binance Coin predictions||90.4%||4||$211.90||-0.51%||-1.42%||$32 599 483 391|
|5||XRP||XRP predictions||89.6%||8||$0.498171||-0.94%||-3.82%||$26 558 684 405|
|6||USDC||USD Coin predictions||92%||1||$1.000013||-0.01%||-0.01%||$25 482 938 324|
|7||STETH||Lido stETH predictions||93.2%||1||$2 941.39||-0.40%||-3.32%||$10 258 752 564|
|8||WTRX||Wrapped TRON predictions||88.8%||20||$0.084973||0.59%||0.51%||$8 639 700 468|
|9||ADA||Cardano predictions||92.4%||8||$0.244012||-0.57%||-2.80%||$8 571 772 939|
|10||DOGE||Dogecoin predictions||93.6%||6||$0.060473||-0.46%||-3.62%||$8 537 944 555|
|11||SOL||Solana predictions||88%||22||$19.21||1.02%||-4.69%||$7 926 687 641|
|12||TRX||TRON predictions||86%||18||$0.085280||0.25%||0.71%||$7 597 972 233|
|13||TON||Toncoin predictions||59.2%||84||$2.16||2.18%||-9.20%||$7 427 615 519|
|14||DAI||Dai predictions||92.4%||1||$0.999584||-0.05%||-0.02%||$5 345 663 638|
|15||DOT||Polkadot predictions||88.8%||11||$4.00||-0.25%||-3.61%||$4 927 453 445|
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