XRP has consistently traded in bearish territory for over a week, and traders are beginning to exercise caution against further price declines.
However, recent Cryptoquant data suggests that momentum may flip soon as selling pressure appears to be subsiding following a liquidity crunch on the world's largest crypto exchange, Binance.
XRP faces liquidity crunch on Binance
As of Monday, May 25, a report shows that XRP's 30-day liquidity index on Binance has plunged significantly close to zero amid the prolonged price downturn.
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It is important to note that the liquidity of an asset often measures how easily traders can buy or sell the asset without causing major price fluctuations.
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Thus, when liquidity falls, order books are significantly adjusted, indicating that there are only a few sell orders available to absorb aggressive buying activity.
With XRP's liquidity index on Binance being close to hitting zero, it suggests a sharp decline in the available supply of XRP on the exchange amid rising demand, which is often positive for its potential price move.
XRP price breakout next?
According to market analysts, low-liquidity conditions as seen in this case often represent reduced selling pressure and further attract the interest of large buyers.
Furthermore, in the case where liquidity dries up, analysts predict that the asset could see a massive and positive price reversal even if there is a modest influx of capital.
The historical record shows that the last time XRP experienced a similar liquidity squeeze on a major exchange, the Ripple-associated crypto recorded a sharp upward move shortly afterward.
As such, the sharp decline in XRP's liquidity seen recently has fueled speculation that XRP could be preparing for a major price breakout if buying momentum returns.
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