XRP has significantly rallied this month, defying the general market performance and outshining larger cryptocurrencies, on positive sentiments relating to Ripple’s case with the United States, Securities and Exchange Commission (SEC).
The rally has been one of note, especially because many traders are now taking up bullish bets in the options market in hopes of continued gains into the end of the year. The cryptocurrency, popularly known as the payments-focused cryptocurrency, ranking 6th, with a market capitalization of $26.71 billion, traded at about 54 cents as of the time of this writing, up over 30% in the last 24 hours, over 63% in the last seven days and has gained approximately 65% for the month of September 2022.
XRP is the top performer of the top 10 cryptocurrencies by market capitalization despite the buzz seen around Ether, over its move to a PoS consensus mechanism. For the month of September, market leaders, bitcoin and ether, are down 4.5% and 17% respectively so far.
What you should know
- In December 2020, the Securities and Commission (SEC) charged the San Francisco-based payment protocol developer Ripple Labs, the creators of the XRP token, with violating securities laws by raising $1.3 billion through XRP sales to investors. As a result, the token crashed even as bitcoin and the broader market went on a very strong rally.
- The case has been on for almost two years, and with recent news, it looks to be drawing towards its conclusion, with Ripple favoured as the victor. This is because last week, the SEC and Ripple Labs filed for what is known as a “summary judgment.”
- A summary judgement is a legal process where a court decides based on the facts that have been provided without ordering a trial, raising expectations of a final ruling before the year-end. Traders are bidding positive on this news because if Ripple comes out as the victor, it will eliminate a significant source of uncertainty in the XRP market.
- According to Dick Lo, the founder and CEO of Hong Kong-based quant trading firm and liquidity provider, TDX Strategies, he explained, “We have seen interest in buying XRP year-end upside call options in anticipation of a resolution in the ongoing lawsuit with the U.S. Securities and Exchange Commission.”
- A call option is a derivative contract giving the purchaser the right but not the obligation to buy the underlying asset. In this case, the underlining asset in question is XRP. It allows them buy at a predetermined price on or before specific expiry date. A call, therefore, is preferred by bullish speculation, while a put option represents a bearish bet.
- According to defense lawyer James K. Filan, he explained that the results of the summary judgement will be based on provided facts and a decision on whether XRP is a security or otherwise is expected by mid-December.
- Due to excitement, according to Cointelegraph’s market analyst Marcel Pechman, he explained that XRP’s open interest is now at $575 million up from $310 million just a week ago. This represents an 85.48% rally.
- Dick Lo mentioned that “If the ruling is in Ripple’s favor, XRP could rally quickly to [68 cents] and then potentially to [93 cents] (Fibonacci retracement levels),” adding that fund clients and high-net-worth individuals have been buying 50 cent strike XRP calls expiring on Dec. 30.
- Buyers of the 50 cent strike calls are betting that the cryptocurrency will rally beyond 50 cents before the expiry. On this, Dick Lo explained, “Buying a call option provides exposure to the potentially explosive upside move while capping the potential loss.”
- A call buyer pays compensation in the form of options premium to the seller for offering protection against price rallies. The premium paid is the maximum money a call buyer stands to lose in case of a market slide. In contrast, the maximum profit can be unlimited, because, in theory, an asset can rally to infinity.
- However, trading options are generally more complicated as several factors, such as time to expiry and volatility, influence prices. It is better suited for sophisticated or institutional investors with ample capital supply.
- Although there is excitement to take positions at this level, there are still some traders who are not yet positioned. This is because they are waiting to see if the 200-day moving average at $0.49 is flipped to support over the next few daily closes. Typically, intraday and swing traders take profit at longer-term resistance levels and they also anticipate price rejections and lower support retests after an asset manages a breakout from a period of long consolidation, price bottom or a market structure-altering move.
The XRP rally indicates that news or event-driven trading is the flavour of the season. Another sign, ATOM, the native token of the Cosmos blockchain, rallied sharply early this month on expectations that network Cosmos will announce the interchain security at a Sept. 26 conference, opening doors for the token to capture value from the entire network.