The high transaction volume on the blockchain is not the only indication that people are using it.
Instead, it can reveal potential price dynamics. The logic is simple. More transactions generate more fees, and when those fees are burned, the circulating supply decreases. Traders call this a supply squeeze, and it can sometimes set the stage for price increases.
This week, Ripple’s XRP Ledger (XRPL) reached the milestone of 3 million daily transactions and the market reacted quickly. Analysts point to Ripple’s strategic partnership as a key driver of this growth, and suggest that the chain’s increased usage could translate into severe pressure on XRP.
One analyst adds to the hype, pointing to XRP’s oversold RSI at press time as a sign that a potential bottom could be forming. For context, to RSI the end hit similar levels in december 2022 during to bear the market soon after XRP came together almost 60% up to to Down from Q1 2023.
Naturally, a key question arises – As XRPL has reached its trading stage and is technically oversold, is the 25% correction in XRP this year really a case of “undervaluation”? Especially in a market that ignores the impact of supply pressure on its long-term price dynamics?
Or has the “hype” surrounding Ripple’s recent partnership overtaken the fundamentals, potentially jeopardizing the 2022 style shift?
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Ripple’s latest partnerships are pushing XRPL to become a DeFi settlement hub.
Simply put, by connecting with traditional banks, Ripple is clearly entering the payments market and using the XRP Ledger as a bridge between TradFi and DeFi. This setup makes transactions on blockchains seamless and positions XRP as a key tool for efficient money transfer.
As a result, stablecoins play a big role here and provide the necessary liquidity to fill these transactions. However, according to DeFiLlama, the stable market value of XRPL has fallen by around 12% this week alone. And that’s only about 0.116% of the $320 billion stablecoin market.
Looking at the big picture, the market is waking up to these limitations.
Since stablecoins fuel the majority of XRPL transactions, their slowdown could hold back DeFi activity and raise questions about whether Ripple’s partnership can actually drive the growth of the XRP chain. This puts the entire supply squeeze report under the microscope.
In this context, XRP’s technical weakness despite Ripple’s initiatives does not mean that it is insignificant. Instead, the market may wake up to the harsh reality of DeFi XRPL’s deceleration and make a 2022-style turnaround unlikely.
Final conclusion
- The high transaction volume of XRPL and strategic partnerships may lead to a decrease in supply, but the 25% correction of XRP also raises questions.
- Weak DeFi performance and slowing stablecoin momentum highlight XRPL’s limitations, putting a juicy report and 2022-style return at risk.
