Why TRON, XRP, and Cardano (ADA) just plunged 12% in a severe altcoin correction

Why TRON, XRP, and Cardano (ADA) just plunged 12% in a severe altcoin correction

Major alternative cryptocurrencies (altcoins) including TRON, XRP, and Cardano (ADA) dropped by more than 12 percent against the USD on the day. The move follows a strong 50 to 90 percent upsurge within a span of two months.

A big upsurge is often supplemented with a big correction

In the past two weeks, while the Bitcoin price increased by 14 percent, TRON, XRP, and Cardano surged by around 30 percent on average.

As the Bitcoin price reclaimed $10,000, which is widely considered to be a psychological level by traders, the cryptocurrency market started to rebound. Traders started to become more confident in the bullish market structure, taking the market cap of the entire cryptocurrency market from $256 billion to $307 billion in about ten days.

The market quickly became overbought, leading most technical indicators like the relative strength index (RSI) and other momentum oscillators to show signs of an imminent pullback.

In an upward trend, altcoins tend to front-run bitcoin and surge faster than the dominant cryptocurrency. In the latest bull trend, for instance, the price of Ethereum started to rise first with bitcoin following the price trend of Ethereum.

During a bearish trend or a pullback, altcoins tend to depend on bitcoin for short-term price movements.

Although the bitcoin price briefly surged past $10,000 on the day immediately after the opening of the CME bitcoin futures market, it demonstrated a steep sell-off right after it. Consequently, altcoins like XRP, TRON, and Cardano pulled back, recording significant volatility in a short period.

Josh Rager, a cryptocurrency technical analyst, said that after the daily close earlier today, the bitcoin price was at a crucial support level at $9,800.

As Bitcoin struggled to hold $9,800 and corrected to the $9,600s, even major altcoins with relatively high liquidity in the likes of XRP plummeted with little to no reaction from buyers.

Rager noted:

“Bullish – nice 4 hr & daily close to end Sunday, bounced at key area of $9800 (HVN). Bearish – still forming lower highs/lower lows on intraday charts, CME price pullback from $10,075. less premium Still needs to hold $9800+ on HTF or we’ll still visit $9,300 to $9,550.”

bitcoin xrp
Bitcoin briefly rejected the $9,800 support level, causing altcoins like XRP to plunge (source: Josh Rager Twitter)

If the Bitcoin price rebounds in the short-term, altcoins are likely to be the biggest beneficiaries of it.

Why altcoins like XRP fell so hard

However, due to extremely high funding rates, XRP fell by 22 percent within 24 hours, causing havoc in the market.

A funding rate on margin trading platforms like BitMEX and Binance Futures refers to a system that lets long holders or short sellers pay each other based on the state of the market.

If there are more longs in the market, long holders need to pay short-sellers a certain percentage of their position every eight hours to bring balance in the market. In the case of XRP and Ethereum, funding rates exceed 0.1 percent, which means long holders need to pay short-sellers a significant amount of money to leave their positions open.

That places pressure on long holders to adjust or close their positions, causing a deeper correction in the market.

Posted In: Altcoins

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