XRP’s recent market movements have attracted optimism among traders, but rising Bitcoin dominance could pose significant risks. Analysts warn that this could trigger a wave of liquidations for highly leveraged XRP positions.

XRP’s Recent High and Sharp Decline

XRP reached a yearly high of $2.85 on Dec. 3, following a dramatic 431% rally spurred by market excitement after Donald Trump’s U.S. presidential win on Nov. 5. However, since that peak, XRP has retraced nearly 18%, trading at $2.37 as of publication. Despite the pullback, traders have continued to bet on XRP’s recovery, leading to increased long positions.

According to Pav Hundal, lead analyst at crypto exchange Swyftx, the growing dominance of Bitcoin in the market could lead to significant liquidations for XRP bulls. Bitcoin dominance currently stands at 55.30%, with some traders anticipating it could rise to 60-70% before funds rotate back into altcoins.

“The real danger right now for highly leveraged XRP bulls is that Bitcoin dominance increases again. A rotation from XRP to Bitcoin would very likely lead to a bloodbath of liquidations,” Hundal explained.

Market Appetite for XRP Long Positions

The market appears to have developed a strong appetite for leveraged long positions on XRP. Hundal noted a spike in quick retail buying, with open interest—representing the total number of unsettled futures and options contracts—doubling compared to levels seen in 2021.

At current levels, even a modest 7% price drop to $2.18 could result in $104.4 million worth of long liquidations.

Data from CoinGlass shows that XRP’s open interest surged to $3.44 billion on Dec. 5, significantly higher than the $2 billion recorded during a similar rally in 2021. This has led to concerns about market exuberance.

“It’s starting to look like the market could be approaching euphoria territory,” Hundal said, cautioning traders to remain vigilant.

Hope for Stabilization

Despite the risks, stabilization in Bitcoin’s price could help calm market fears. Hundal pointed out that warm funding rates—a measure of demand for leverage in futures markets—on some exchanges suggest there is still room for caution.

“Bitcoin stabilizing could soothe nerves, and spot volumes may pick up again,” he added.

For XRP to regain momentum, it will need to navigate the challenges posed by rising Bitcoin dominance and high leverage in the market. Traders are advised to monitor Bitcoin’s movements and funding rates closely to avoid potential liquidation events.

With the crypto market entering a critical phase, the coming weeks will be crucial in determining whether XRP bulls can sustain their positions or if a shift toward Bitcoin dominance spells trouble.