Market Spotlight: Analysing XRP Following Judge Torres’ Ruling
Yesterday, Judge Torres ruled in favour of XRP in their case against the SEC. The verdict of the lawsuit has been long-awaited and the new ruling provides fresh optimism in light of the current regulatory action levelled against the industry, particularly with a focus on whether digital assets should be deemed securities in the US.
This ruling may set a precedent for the industry moving forward and is positive for both altcoins and the wider industry, as the default expectation is that these assets are NOT deemed securities, so long as they were made available to the public.
Going forward, it’s likely this event will have wider implications for ongoing legal cases, as well as rebuilding confidence to participate as a developer in the industry. It may also attract more liquidity to the ecosystem, as market makers benefit from reduced risk in holding and supplying the underlying asset to exchanges.
Price Performance:
Following the positive news, the price of XRP pushed as high as $0.93, recording the highest price since May 2021, and closed at $0.82. As expected, the news led to an influx of trading activity, with XRP trading pairs on centralised exchanges recording a total volume of $6.05bn on the day, an increase of 1351% from the previous day.
The relisting of the asset on other centralised exchanges including Coinbase, Kraken and Gemini has also contributed to the spike in volumes.
The news surrounding the ruling also led to almost 100% daily gains for XRP, with other tokens such as Solana and Cardano, which have been recently deemed securities, seeing significant gains of 35% and 28% respectively.
Liquidity Performance
Despite the negative backdrop that XRP has faced due to the lawsuit, its market depth liquidity at the 1% level has remained resilient year-to-date (YTD). XRP’s 1% bid/ask side depth at Yearly Open was 26.5 million XRP, which saw a variance of 0.41% throughout the year and remained strong at 25.1 million XRP on the 12th of July.
This overall stability and low variance have been a good indicator of the potential perceived risk of market-making on the XRP pair, which becomes more risky if XRP is likely to be deemed a security. If this liquidity was to see any severe drops, it would likely indicate the risk of holding inventory on the books in case the SEC was to win, causing negative price action and a potential swathe of delistings on exchanges.
Orderbook Structure
Using CCData’s Orderbook data, we can visualise where some of the largest orders existed in the books. The move clearly took most speculators by surprise, given the large congregation of orders within a very tight range of around $0.45, represented by the high-intensity yellow colouring prior to the announcement.
Resting sell orders up to $0.60 can be observed in the heatmap, which ended up getting filled on the aggressive move upwards. The fact they were filled prior to being pulled underscores the unexpected nature of the move, which still increased another ~55% to $0.95 from $0.60 due to the sheer volume of buy delta. Large resting orders can also be identified which price typically gravitates towards due to its liquidity.
- Large Block of orders on both sides of the price, indicating a tight range and expectation of low volatility.
- Laddered sell orders at regular price intervals up to $0.60, showing a desire for orders to get filled, which they were.
- Empty space on the bid side as the price moved aggressively higher, indicating the sharpness of the move and the difficulty in refilling the orderbook.
Derivatives Insight
Examining derivatives data, XRP maintained a positive funding rate over the past couple of days, in line with wider positive market sentiment. As the event occurred, it generated large speculative interest on the bid side, displayed by a ~ $280mn rise in Open Interest, from $635mn to a high of $913mn aggregated across exchanges, with funding rates reaching a peak of over 0.03% across exchanges.
This is over three times higher than its baseline level of under 0.01% prior to the announcement.
When examining the Funding Rate history of XRP, it is evident that speculators trading perpetual contracts have been favouring the upside, with very limited time spent this year in negative funding rate territory.
This chart underscores the positive speculation by traders for XRP, which was recently rewarded with a large price rise as a result of the announcement. Whether XRP maintains the extremely positive funding rate remains to be seen, but it is currently a good standard for gauging positive sentiment within altcoins, given the attention and volume it will likely be generating over the coming weeks.
Conclusion
Considering the success of the lawsuit, the implications for the market are overwhelmingly positive and the ruling provides a level of clarity that did not exist prior to the judgement.
We could see a few trends emerge, such as coins deemed securities recovering well and potentially outperforming, as well as the potential for BTC dominance to drop as an overall % of market cap, given renewed optimism in altcoins.
This also harms the SEC’s credibility regarding their approach of regulation by enforcement and could prove to be a landmark event for the industry, drawing in fresh liquidity and confidence to continue building and innovating in the digital asset sector.
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