Ripple plunges after soaring more than 220% in November due to SEC lawsuit Contract liquidation soar

Liquidation of XRP futures contracts spiked late in the year due to a bullish signal in November that caused funds to go heavily long, which was followed by a plunge in December when the U.S. Securities and Exchange Commission (SEC) filed a lawsuit in the U.S. District Court for the Southern District of New York, alleging that Ripple hit the coin's price.

In November, the price of XRP surged more than 220% to a two-year high of just under $0.80 as traders anticipated a scheduled token airdrop campaign by the Flare network for all XRP holders. In short, anyone holding XRP will automatically receive a portion of the new Spark tokens, spurring new buyers to accumulate XRP.

Adding fuel to the frenzy, Coinbase, the leading U.S. cryptocurrency exchange, announced plans to support the upcoming airdrop, according to a previous CoinDesk report.

“XRP experienced massive price gains in November due to retail investor interest in the Spark airdrop scheduled for December 12, 2020,” said Florent Moulin, a cryptocurrency researcher at data provider Messari. “The market is also seeing experienced investors accumulating XRP in anticipation of a retail-led bull market.”

Monthly liquidation of XRP since March 2020

Source Bybt, CoinDesk Research

XRP's acute bull trend came to a swift end when the U.S. Securities and Exchange Commission (SEC) filed a lawsuit against Ripple, accusing it of violating federal securities laws in selling the cryptocurrency to retail consumers, raising $1.3 billion over seven years.

Traders reacted negatively to the news and XRP instantly began to give back large chunks of its gains from the previous month. Institutional investors followed suit, with cryptocurrency money manager Bitwise liquidating its entire XRP position in the index and prominent brokerages such as OSL notifying clients to stop all XRP trading.

Both events - the short sale and the lawsuit - pushed XRP price volatility to its highest level since July 2018, with volatility increasing by more than 130 percent since the beginning of November, according to Coin Metrics.

Moulin told CoinDesk that XRP's steep price decline could be due to a combination of factors. But perhaps the most important is the SEC's lawsuit against Ripple.

Also notable is the increased selling by Ripple co-founder Jed McCaleb, who sold more than $120 million worth of XRP in December, an amount that Moulin said was more than three times the amount in previous months.

XRP Price and Daily Liquidation Volume since November 2020

Credit: Bybt, TradingView, CoinDesk Research Bybt, TradingView, CoinDesk Research

Moulin said the December price dip was also partially caused by XRP holders selling after receiving tokens from the airdrop event.

Regardless of the cause, XRP has fallen more than 60 percent since news of the SEC lawsuit broke and dropped below the crazy levels seen before the airdrop in early November, to $0.21 on Wednesday.

And with prices still falling and more than $350 million in futures contracts liquidated in the two days before Christmas Eve, XRP investors are in for a not-so-happy holiday.