XRP price bows to headwinds, FTX-triggered liquidity crisis risks prolonging crypto winter

XRP price could erase most of the gains accrued over the last few days due to fears of the overreaching effects of the FTX crisis. The international money transfer token tested support at $0.32 twice in less than two weeks, owing to the resistance encountered at $0.40. It appears that XRP price will consolidate between the demand area at $0.31 and the supply area at $0.41 as market participants make up their minds.

How the FTX debacle could prolong crypto winter

The collapse of FTX, its sister company Alameda and about 130 affiliated businesses created a liquidity crunch that continues to reverberate in the market. Alameda Research, Sam Bankman-Fried’s trading arm, was among the top market makers in crypto. However, a shady relationship with FTX triggered a series of events that would later force both companies to cease operations last Friday – filing bankruptcy proceedings under Chapter 11.

A report by Kaiko Research shows liquidity in crypto is provided by a handful of trading firms, including Amber Group, B2C2, Genesis, Cumberland and (the now defunct) Alameda. The exit of one of the biggest market makers has resulted in what experts call the “Alameda Gap.”

“Liquidity typically drops during times of volatility as market makers pull bids/asks from order books to manage risk and avoid toxic flow. But the drop in liquidity we have observed over the past week is far larger than any other previous market drawdown, which suggests the Alameda Gap in liquidity could be here to stay, at least in the short term,” Kaiko Research outlined in the report.

Large investors could be staying away from the crypto ecosystem. A report from Coinbase indicates that stablecoin dominance is rising after hitting a new record high of 18%. This increase shows that investors are closing their positions in crypto assets in favor of dollar-pegged stablecoins.

According to analysts from Coinbase, the crypto market is still a long way from pushing the FTX crisis in the rearview and could face “second-order effects.” With investor confidence eroded, it will take time to repair the reputation, pushing the crypto winter toward the end of 2023.

XRP price recovery stifled under $0.40

XRP price has approached resistance at $0.40 twice in the last seven days and failed to break through. On the downside, support at $0.32 continues to hold firmly, giving bulls a chance to propel the price upstream.

The 50-day Exponential Moving Average (EMA) (in blue) at $0.3840 caps movement to the upside, leaving buyers with no option but to wait for lower-priced entries. A sell signal from the Moving Average Convergence Divergence (MACD) might exacerbate the losses.

XRPUSD daily chart

Traders can squeeze more gains from XRP price with short positions placed slightly below the short-term support at $0.3700. A possible return of the MACD into the negative region (below the mean line) will cement the sellers’ presence in the market. Potential take-profit targets lie at $0.3400, and the primary support at $0.3200.

Conversely, traders must pay attention to a buy signal recently presented by the Super Trend indicator. As long as buyers heed this call to buy more XRP, the stubborn resistance at $0.400 might not stand a chance against a tail force with a destination target at $0.5100.