XRP Faces a Crucial $2 Challenge: Analyzing $1.3 Billion in Outflows and Low Network Activity

The altcoin market continues to struggle to find a bottom, with investor interest in high-risk investments declining. XRP has faced significant pressure, losing its crucial $2 support level twice since October, suggesting a bearish trend. Despite significant outflows from exchanges, signs of accumulation may suggest potential future growth. However, weak on-chain activity is raising concerns about the network's organic demand.

Key Takeaways

The Altcoin Season Index indicates decreasing interest in high-risk investments.
XRP has experienced $1.3 billion in outflows and has struggled to reclaim key support levels.
Ripple's recent ETF activity adds some support, but low on-chain activity raises red flags.
The gap between XRP's accumulating holdings and declining network use suggests speculative investment rather than organic demand.

XRP Faces a Crucial $2 Challenge

Current Market Conditions for XRP

The altcoin market is actively searching for a bottom, as indicated by the Altcoin Season Index retreating to levels seen in mid-July. This decline shows that investors are less eager for high-risk, high-reward choices, highlighting the importance of maintaining major support levels for volatile assets like XRP.

XRP is also feeling the heat. Since the mid-October downturn, it has dropped below the $2 support level twice and has struggled to regain the necessary positions for a smooth recovery, revealing a bearish market structure.

XRP Price Chart
Source: TradingView (XRP/USDT)

Historically, such a bearish structure can signal accumulation. For example, XRP remained stagnant in the first two quarters of this year before breaking out in late June, which led to a rapid rise to a multi-year high of $3.60. A similar scenario may be repeating itself.

In the last month alone, $1.3 billion worth of XRP has left exchanges, with total reserves decreasing from $7.03 billion to $5.70 billion. This trend prompts questions about whether Ripple's current sideways movement is setting the stage for a significant upcoming shift.

Demand versus Fundamentals: An Unbalanced Perspective

As the fourth quarter begins, the buzz surrounding a Ripple ETF has begun to generate momentum. So far, ETF clients have acquired $8.73 million worth of XRP, raising the total assets held by the ETF to $945.49 million. This influx offers additional support for XRP as it navigates a challenging consolidation period.

However, on-chain data paints a different picture. The Total Fees Paid daily on XRP have plummeted from 5,900 in early February to only 650 as of now—an alarming 89% drop to levels not reached since December 2020.

Ripple On-Chain Data
Source: Glassnode

The disparity between XRP's fundamentals and market activity is growing. While institutional buying provides some support, declining on-chain activity signals reduced organic demand for XRP. Additionally, the Total Value Locked (TVL) on XRPL has fallen to $70 million, indicating tighter liquidity on the network.

These aspects together suggest that XRP's recent accumulation may be driven more by speculation than by fundamental strength. As such, the weak on-chain performance may keep XRP within a restricted range until its network usage sees improvement.

Conclusion

As the cryptocurrency market continues to evolve, XRP faces significant challenges. Investors should closely monitor both accumulation trends and on-chain activity to determine the asset's future trajectory.