XRP has recently flashed a potential buy signal as its funding rate has turned deeply negative, hinting at a possible bullish reversal. This development has spurred discussions among traders and analysts, questioning whether bulls will seize the opportunity to drive the price upward.
Understanding the Funding Rate
In the realm of cryptocurrency derivatives, the funding rate is a crucial indicator of market sentiment. It's a mechanism used by exchanges to ensure the prices of perpetual contracts align with spot market prices. When the funding rate is positive, it means longs (buyers) are paying shorts (sellers) to keep their positions open. Conversely, a negative funding rate indicates that shorts are paying longs. This scenario typically arises when there are more traders betting against the asset than those betting for it. A negative funding rate reflects strong demand for leveraged bearish bets.
XRP's Negative Funding Rate: A Bullish Sign?
As of Thursday, December 11, 2025, the funding rate on XRP perpetual futures plummeted to -20%, marking its lowest level since October 10. Such deeply negative rates are uncommon and often short-lived. Some analysts interpret this as a potential reversal signal, although it's worth noting that historically, these signals have emerged during flash crashes rather than extended corrective phases. A negative funding rate suggests that bearish traders are dominating the market and are willing to pay a premium to maintain their short positions, reflecting weak investor confidence in XRP.
Other Market Indicators
While the negative funding rate might suggest a potential buying opportunity, other indicators present a mixed picture. Aggregate open interest in XRP futures remained stagnant at $2.8 billion, failing to recover to the $3.2 billion level seen in late November. This suggests a lack of strong bullish conviction or fresh capital entering the market.
Adding to the uncertainty, activity in U.S.-listed XRP ETFs has declined, and the Total Value Locked (TVL) on the XRP Ledger is also fading. This indicates waning interest in the XRP ecosystem, potentially reducing the likelihood of a significant price rebound in the near term.
XRP's Price Action and Technical Analysis
XRP experienced a 9% drop over two days after being rejected at $2.18 on Tuesday. This decline pushed the price below $2, causing some turbulence in the derivatives market as the cost of holding leveraged bearish positions surged to a two-month high.
Currently, XRP is trading around $2.06, below its 50-day EMA ($2.26), 100-day EMA ($2.42), and 200-day EMA ($2.46), reinforcing a bearish outlook. The Moving Average Convergence Divergence (MACD) line is hovering near the signal line, and the Relative Strength Index (RSI) is at 43.94, indicating subdued buying interest in the short term.
Potential for a Short Squeeze
Despite the prevailing bearish sentiment, some analysts suggest the possibility of a short squeeze. If bullish momentum builds, the large number of short positions could be forced to cover, leading to a rapid price increase. However, low open interest suggests that many traders are awaiting a clearer market direction before committing substantial capital.
Conclusion
The negative funding rate in XRP indicates a potential buy signal, but it should be considered alongside other market indicators. Declining ETF activity and stagnant open interest suggest that a significant price rebound may not be imminent. Traders should exercise caution and conduct thorough research before making any investment decisions, considering both the potential for a short squeeze and the overall bearish technical outlook.
