Coinbase Markets has warned about the XRP derivatives market as a huge number of underwater bullish positions emerge, with XRP struggling to pick up again.
An insane 97% of XRP net-long notional exposure was set at prices higher than the current XRP market price of $1.31, according to the exchange.
The largest cluster of net-long exposure was set at an average entry price of around $1.40, meaning that a majority of the current remaining bullish market exposure is currently underwater.
Traders could either add more to their bullish bets in hopes of a market recovery or fold out of those positions to prevent further losses.
What does it mean for XRP in practice？
Now that XRP is falling further, some traders might feel forced to exit those positions, especially if using leverage.
This could drive some selling pressure on XRP, leading to a potential self-reinforcing cycle of falling prices forcing traders out of the market, especially leveraged ones.
On the flip side, if XRP were to recover, that could encourage traders to stay in those positions or even add more to them.
It is also important to note that the 97% figure from Coinbase does not imply that 97% of all XRP investors are underwater. It refers to net derivatives exposure, not the full population of XRP holders.
Glassnode's methodology works by calculating the difference in outstanding long and short exposure at each entry price level. If the difference is positive, it means that the number of long positions is larger than the number of short positions. If negative, vice versa.
According to Glassnode, there is also a pretty sizable net-short exposure around $1.49 and $1.50. The largest negative cluster is over $20 million in notional value.
Hence, there is quite an unbalanced market picture, with many bullish positions struggling. However, those entry prices on the chart are not necessarily liquidation prices. We do not know precisely where traders will be forced out of those positions, which depends on leverage, margin, collateral, and so on.