XRP 20% Crash Warning a Trap as Short Squeeze Looms at End of Downtrend

▲ XRP / AI-generated image

XRP (XRP) has broken out of a strong bearish warning pattern and staged a surprise rebound, entering a bear trap phase that has ensnared investors who had bet on further declines.

According to cryptocurrency media outlet CoinGape on February 25 (local time), XRP recently formed a classic head-and-shoulders pattern on the 8-hour chart, a typical signal of a bearish reversal suggesting the possibility of a drop of more than 20%. However, after briefly breaking below the key support level of $1.33, the price quickly recovered in an unusual move. Although the On-Balance Volume (OBV) indicator declined despite the price increase—warning of weakening buying pressure—the market instead appeared to use the downside breakout as bait to lure in short sellers before launching a counterattack.

Open interest data in the futures market shows that investors reacted aggressively to the recent bearish signal. Open interest surged from $750 million to $770 million just before the decline, while the funding rate fell to -0.014%, with short positions skyrocketing by 460%. However, as XRP chose to rebound nearly 6% instead of plunging, aggressive short sellers were forced to liquidate or significantly reduce their positions.

Amid this volatile market, whale activity diverged sharply from that of retail investors. Major accumulation groups, including super whales holding between 100 million and 1 billion XRP, purchased an additional 150 million XRP between February 23 and 25, when the bearish signal emerged. Based on an average price of $1.35, approximately $200 million flowed into the market during the panic-driven downturn, with whales absorbing panic-selling pressure and establishing a strong support base.

XRP is currently forming another shoulder pattern and testing a new support zone around $1.31. If this level breaks down, further declines toward $1.26 and $1.17 could open up. However, given the recent bear trap, there is also a significant risk of a short squeeze—buying pressure triggered by the liquidation or covering of short positions—following a temporary breakdown. Open interest has once again jumped to $754 million, and the funding rate has turned negative again, indicating that bearish bets still dominate the market.

Ultimately, only a decisive breakout above $1.67 would fully invalidate the current bearish pattern. Until then, a highly volatile trap-driven market is expected to persist. The fact that whales accumulated substantial holdings during the price decline serves as a key factor limiting the continuation of a downtrend. Rather than rushing into bearish bets based solely on technical signals, investors should carefully assess whale accumulation levels and the strength of key support zones before making decisions.

Disclaimer: This article is for investment reference only, and we are not responsible for any investment losses resulting from reliance on it. The content should be interpreted for informational purposes only.