XRP Buy Signal Emerges Amid Deeply Negative Funding Rate: Will Bulls Make a Move?

XRP Buy Signal Emerges Amid Deeply Negative Funding Rate: Will Bulls Make a Move?

Summary:
XRP is currently seeing bearish trends in its derivative markets, as signified by a negative funding rate and stagnant open interest levels. Moreover, diminishing interest in XRP ETFs and declining total value locked (TVL) on the XRP Ledger raise concerns about a potential price rebound in the near future.

Key Takeaways:

The XRP derivatives market is showing significant bearish sentiment with a deeply negative funding rate.
Stagnant open interest and falling XRP ETF volumes reflect a decreased interest in the XRP ecosystem.
The total value locked in the XRP Ledger is declining, which imposes further pressure on XRP’s price dynamics.

Current Market Dynamics for XRP

XRP has recently experienced a decline of 9% over two days, especially after facing resistance at $2.18 this past Tuesday. The coin fell below $2, causing a short-lived disruption in the derivatives markets. This drop resulted in the costs of holding leveraged bearish positions hitting a two-month high. Traders now express concerns that XRP might weaken further due to a slowdown in exchange-traded fund (ETF) activity, alongside a reduction in deposits within the XRP Ledger.

XRP perpetual futures annualized funding rate. Source: laevitas.ch

The funding rate for XRP perpetual futures plummeted to -20% on Thursday, marking the lowest point since the crash on October 10. Negative funding rates indicate that sellers (shorts) are compensating buyers (longs) to maintain open positions, highlighting a significant lack of demand from bullish traders. Under normal circumstances, this funding rate should range between 6% to 12% to cover the cost of capital, which longs typically pay.

Such extreme negative funding rates are uncommon and tend to be short-lived. Some market analysts interpret them as possible signals of reversals; however, most instances have historically occurred during rapid market crashes rather than extended downturns. Additionally, the decreased appetite for leveraging has led some to speculate if traders are simply stepping back from XRP.

XRP futures aggregate open interest, USD. Source: CoinGlass

On Thursday, the aggregate open interest in XRP futures remained at $2.8 billion, unchanged from the previous week. Notably, leveraged positions have failed to recover the $3.2 billion level seen in late November, indicating that XRP bears are hesitant to increase their exposure, especially since the token has dropped 45% since its high of $3.66 in July.

Decline in XRP ETF Activity and Falling TVL

The tepid interest in bullish XRP positions can be attributed to decreasing activity in US-listed XRP ETFs. Traders had begun November with optimistic expectations; however, inflows and trading activity fell sharply after a brief period, leaving total assets under management stagnant at about $3.1 billion, as per CoinShares data. In comparison, Solana's ETFs currently hold $3.3 billion.

US-listed XRP ETF daily volumes on Dec. 11, USD. Source: CoinGlass

The daily trading volume for US-listed XRP ETFs seldom surpasses $30 million, which dampens institutional interest. Furthermore, the decreased demand for the XRP Ledger presents additional challenges for XRP holders. Notably, the Ripple-supported stablecoin, Ripple USD, predominantly operates on the Ethereum network rather than XRP’s own infrastructure.

Ripple USD (RUSD) in circulation per blockchain. Source: DefiLlama

Over $1 billion worth of RLUSD has been issued on Ethereum, while only $235 million is on the XRP Ledger. More alarming is that the TVL on the XRP Ledger has decreased to its lowest level of 2025 at $68 million, reflecting reduced engagement with the ecosystem's decentralized applications (DApps). Comparatively, the Stellar blockchain boasts a TVL of $176 million, even though XLM’s market capitalization is 93% smaller than XRP’s $121.8 billion.

Related: XRP price prediction: "from $2 to $10" in less than a year – Analyst
XRP continues to face challenges as competing blockchains like BNB Chain and Solana solidify their footholds in the DApps universe. The limited activity on the XRP Ledger creates a cyclical issue where investors see fewer incentives to hold XRP when native staking rewards on BNB and SOL are more attractive. Currently, there is no strong evidence indicating that any rise in XRP Ledger activity would provide direct advantages for XRP holders. XRP derivatives suggest increasing confidence among bearish traders, while on-chain metrics and ETF activities reveal dwindling interest, particularly from institutional investors. Consequently, the prospects for sustained bullish momentum for XRP seem low in the near future.