Main Points:
- XRP’s value dropped by over 10% following the SEC’s appeal, reversing previous optimism around an ETF.
- The call-put skew suggests concerns about further declines in XRP prices.
- Bitwise filed for an XRP-focused ETF, but SEC’s legal actions added uncertainty.
- XRP remains one of the poorest-performing top 100 cryptocurrencies in the past week.
The Ripple Effect of SEC’s Appeal on XRP
XRP, the cryptocurrency closely associated with Ripple Labs, saw a sharp decline of over 10% following a significant legal development. What was once an atmosphere of optimism surrounding a potential exchange-traded fund (ETF) has shifted dramatically, thanks to renewed regulatory uncertainty. The U.S. Securities and Exchange Commission (SEC) recently filed an appeal that once again put XRP’s status in question, causing market jitters. The broader cryptocurrency market also felt the effects of this legal battle, which has captured the attention of investors and regulators alike.
SEC Appeal Reverses ETF Optimism
On September 30, 2024, asset management firm Bitwise filed an S-1 form with the SEC, signaling its intent to launch an ETF that would invest in XRP. This move came on the heels of the highly successful launches of Bitcoin and Ethereum spot ETFs earlier in the year, which attracted billions of dollars in investments. XRP holders and the broader market had high hopes that a similar financial product for XRP could spark renewed interest in the cryptocurrency.
However, any optimism was short-lived. Just days after Bitwise’s filing, the SEC lodged an appeal with the Second Circuit Court of Appeals. This action directly contested Judge Analisa Torres’ decision two months earlier, which had ruled that Ripple Labs’ programmatic sales of XRP did not violate securities laws. The SEC’s appeal shattered bullish sentiment in the XRP market, and prices plunged in response.
XRP’s Classification as a Security: The Impact on the Market
The possibility that XRP could be classified as a security has long been a point of contention. In 2020, the SEC sued Ripple Labs, accusing the company of selling unregistered securities through the sale of XRP tokens, which amounted to $1.3 billion. Ripple, a fintech company known for building global payment networks, maintains that XRP is an independent cryptocurrency designed for digital payments and currency swaps.
Classifying XRP as a security could impose stricter regulations and reporting requirements on Ripple and other companies involved in its use. These regulatory hurdles would complicate the cryptocurrency’s operations, leading many in the market to view such a designation as bearish.
As a result, XRP’s value tumbled, dropping by 13% within 24 hours and trading at around $0.51. Over the past week, the cryptocurrency has lost more than 18% of its value, making it the third-worst performer among the top 100 cryptocurrencies. Meanwhile, Bitcoin and Ethereum, the market’s two largest players, also experienced declines but to a lesser degree, with losses of 0.5% and 3.7%, respectively.
Derivatives Market Signals Bearish Sentiment
Another indicator of XRP’s troubles comes from the derivatives market. The 7-day call-put skew, which measures the demand for call options versus put options, showed a bearish bias toward XRP. According to Amberdata, the skew for XRP stood at -3.2%, indicating that traders were seeking more protection against potential price declines. In comparison, Bitcoin’s skew was neutral at 0%, while Ethereum’s was slightly positive at 2.8%.
This data suggests that option traders are more concerned about a further drop in XRP’s price than they are for Bitcoin or Ethereum, which have seen less dramatic reactions to the SEC’s legal actions. These bearish signals point to the broader market’s skepticism about XRP’s near-term recovery.
XRP’s Futures Market: A Mixed Picture
In the perpetual futures market, the funding rate for XRP, which indicates the cost of holding long or short positions, briefly turned negative. This signaled a bearish sentiment, as traders were willing to pay to maintain short positions in XRP. However, as of the latest data, the funding rate has flipped back to positive territory, showing that the market’s negative bias has slightly weakened.
Despite this small rebound in the futures market, the overall sentiment around XRP remains bearish, especially with regulatory concerns looming large.
Uncertainty Clouds XRP’s Future
The SEC’s appeal has once again thrown XRP into regulatory limbo, reversing the optimism that arose from Bitwise’s ETF filing. While the broader cryptocurrency market remains relatively stable, XRP continues to face significant headwinds. Investors are wary of the potential implications of XRP being classified as a security, which would subject it to stricter regulations and transparency requirements.
The bearish sentiment in the options and futures markets underscores the market’s cautious outlook. As regulatory developments unfold, XRP may experience further volatility, and the path to recovery remains unclear.
While XRP’s future is uncertain, it serves as a reminder of the fragile relationship between regulatory clarity and market sentiment in the cryptocurrency space. Investors will be closely watching the outcome of the SEC’s appeal and the ripple effects it may have on the broader digital asset market.
