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Analysts warn that XRP Futures may create vulnerabilities to price manipulation, utilizing elaborate strategies like naked shorting and rehypothecation.
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Historically, the launch of futures for Bitcoin and Ethereum has led to significant price declines shortly after their introduction.
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Despite these concerns, some experts view XRP Futures as a positive sign for mainstream adoption and a potential precursor to a spot ETF.
As the cryptocurrency landscape evolves, analysts are raising alarms that the newly launched XRP Futures could negatively impact the price of XRP (XRP). While some proponents see it as a significant leap toward mainstream acceptance, detractors caution that cash-settled futures might facilitate market manipulation, echoing historical trends observed with Bitcoin (BTC) and Ethereum (ETH).
The discussion gains urgency following the Chicago Mercantile Exchange (CME)’s introduction of XRP futures contracts on May 19.
How Will XRP Futures Impact The Price?
In a recent analysis shared on X (formerly Twitter), the pseudonymous analyst Pumpius cautioned that XRP Futures could turn into a “trap.” He pointed out that these financial products enable large market players to manipulate prices utilizing techniques like naked shorting and rehypothecation.
“You wanted legitimacy. Wall Street gave you leverage. It’s the same playbook used to manipulate gold and silver for decades. No need to dump coins. Just flood the system with phantom contracts, suppress the price, and profit from the decay,” observed Pumpius.
The analyst elaborated on naked shorting, revealing how institutional participants can initiate extensive short positions on XRP without actually owning the tokens. This practice generates artificial sell pressure, potentially driving down prices.
Furthermore, Pumpius noted that whales typically time their short positions to coincide with CME futures expirations, hence triggering price depressions while securing profits. He illustrated this by referencing Bitcoin, which has historically shown an average decline of about 2.3% around CME futures expiration dates.
“Now apply that to XRP: Each CME expiration could serve as a potential bear raid window. Savvy traders will likely monitor CME calendars more closely than price charts,” he warned.
In addition to naked shorting, the analyst mentioned rehypothecation, where a single XRP deposit can back several short positions, thereby enhancing leverage within the market.
This scenario risks additional underlying pressure on XRP’s price, as the observable supply remains static, yet the leverage tied to these positions amplifies. These combined tactics suggest the possibility of substantial price drops for XRP, particularly during futures expirations.
“Naked short selling is permitted in futures. Rehypothecation is a standard practice in traditional finance. Dark pool trading and borrowed liquidity are conventional institutional tools. So when XRP experiences volatility spikes near futures expiry, it won’t be mere coincidence. It will be calculated finance, masked as market activity,” claimed Pumpius.
Historical data substantiates these fears. Fellow analyst AJ Sallen pointed out that after the CME rolled out Bitcoin futures on December 18, 2017, BTC’s price escalated to $19,783 but subsequently plummeted to $13,800 by December 22, resulting in a staggering 30% decrease.
Similar patterns were evident after the launch of CBOE Ethereum futures in 2018, where prices saw sharp declines shortly thereafter.
“The introduction of futures allowed for short positions to be taken, and profit-taking post-hype triggered a correction,” Sallen explained.
Despite these reservations, many market participants remain hopeful that XRP Futures will enhance liquidity and pave the way for the approval of a spot XRP ETF.
“CFTC-regulated contracts on XRP. A spot XRP ETF is only a matter of time,” stated Nate Geraci, President of the ETF Store.
For the time being, XRP’s price has not seen significant declines. According to COINOTAG data, the altcoin recorded a 2.1% increase over the past 24 hours, with XRP trading at approximately $2.30.
Conclusion
In summary, the introduction of XRP Futures has reignited discussions concerning price manipulation risks while simultaneously offering prospects for increased market legitimacy. As traders navigate this evolving landscape, the focus will remain on observing market behaviors and regulatory developments, which could significantly shape the future of XRP.
