XRP Traders Slashing Leverage: Estimated Ratio Plunges Deeper – What’s Next for Price?

XRP traders are pulling back from the edge. The estimated leverage ratio—a key gauge of speculative appetite—is sliding deeper into cautious territory.

Decoding the Leverage Retreat

When the estimated leverage ratio falls, it signals traders are reducing their borrowed positions. They're not chasing moonshots with other people's money right now. It's a classic risk-off move, often seen when confidence wavers or markets enter a consolidation phase. Think of it as the crypto crowd quietly moving from the blackjack table back to the slots—less thrilling, but the house takes longer to clean you out.

The Bull and Bear Tug-of-War

This de-leveraging cuts both ways. On one hand, it can relieve selling pressure. Fewer over-leveraged positions mean fewer forced liquidations during a dip, potentially creating a more stable floor. It's the market equivalent of taking your foot off the gas before a sharp curve.

But the flip side? It also suggests a lack of aggressive bullish conviction. Big moves often need fuel, and leverage is high-octane stuff. Without it, explosive rallies are harder to come by. The crowd might be waiting for a clearer signal—maybe some regulatory news that doesn't read like legal hieroglyphics—before piling back in.

Price at a Crossroads

So where does this leave XRP's price? In the short term, expect less volatility—a potential calm that could frustrate both day traders and headline writers. The path of least resistance might be sideways action as the market digests this shift in trader behavior.

Longer-term, a healthier, less-leveraged market can be a stronger foundation. It shakes out the weak hands and builds a base of more committed holders. The next major move will likely need a fresh catalyst, something beyond the usual cycle of hype and fear that drives 90% of crypto commentary. Until then, the smart money is playing it safe—or at least pretending to, which in finance is often the same thing.

Leverage Unwinds Across XRP Markets

XRP’s waning price action is starting to trigger a crucial shift in investors’ action and sentiment toward the leading altcoin. A widely monitored derivatives metric outlined by Arab Chain, an author at CryptoQuant, is still trending lower, suggesting that the market risk balance for the altcoin is subtly recalibrating.

Specifically, the Estimated Leverage Ratio (ELR) for XRP, a metric that monitors the amount of borrowed capital traders use in relation to exchange balances, is showing a persistent downtrend. Typically, a continued decline in the measure is a clear sign of reduced risk in the derivatives market.

After examining the XRP’s ELR on Binance, the world’s largest cryptocurrency exchange, Arab Chain found a persistent decrease to roughly 0.18, reflecting a clear sign of caution in the XRP market on Binance. It is worth noting that this position is one of the lowest levels recorded during the ongoing period, as the price of the token trades close to the $2.00 mark.

Arab Chain highlighted that the drastic decline in the ELR suggests that investors’ reliance on decrease is decreasing, meaning that most of the funded positions have been closed or limited. Structurally, a decline in leverage is seen as an indication of reduced market fragility.

When this occurs, it lowers the likelihood of forced liquidations, which are caused by sudden price movements. As the market tends to lower risk and reset open positions, this behavior usually happens following times of increased volatility or price corrections. 

Interestingly, the drop is occurring along with a downward trend in XRP’s price compared to its previous levels above $3.00. This synchronicity is a sign that the accumulation of highly Leveraged positions does not fuel the price decline. Rather, it is riven by the unwinding of such positions.

In the past, environments like these typically marked transitional phases. During this period, the market transitions from active speculation to a calmer phase concentrated on rebalancing. 

A Stabilization To Kickstart A Rally

Once the metric starts to stabilize again at a relatively low level, Arab Chain noted that it could lay the foundation for more substantial xrp price movements in the future. However, this is expected to happen once liquidity slowly returns to the derivatives market in the absence of excessive leverage.

In other words, low leverage WOULD make any future rally less likely to see a dramatic reversal. While the ELR sits at 0.18, the market is still reconstructing itself and creating a more balanced base prior to calculating its next major direction. Whether it resumes its upside direction or enters a prolonged consolidation phase depends heavily on the metric’s movement.