Ripple’s native cryptocurrency, XRP, has garnered increasing attention from investors in recent weeks, driven by a wave of optimism from both retail traders and institutional players. The cryptocurrency has been on a steady uptrend since early May, briefly pushing toward the $2.54-$2.66 resistance zone. However, recent price movements, alongside technical and on-chain data, suggest that XRP’s bullish outlook may not be as secure as it seems.

At the time of writing, XRP was trading at $2.47, reflecting a 4.74% drop over the past 24 hours, following a rejection at the $2.66 Fibonacci resistance level. Despite this short-term setback, several factors, both bullish and bearish, are at play in the market for XRP. Traders and investors need to monitor these signals carefully as the cryptocurrency faces key technical hurdles that could shape its future price trajectory.

Supply Shrinks, But Valuation Concerns Emerge

One of the more optimistic signs for XRP is the recent drop in its Exchange Reserve, which fell by 3.22% to $7.28 billion. A reduced supply of XRP available on exchanges typically suggests that holders are confident in their long-term positions and are less likely to sell. This could be a positive indicator for the market, as the likelihood of sell-offs decreases when fewer tokens are readily available for purchase.

However, despite this apparent bullish trend, there are overvaluation risks that could hinder further price growth. The NVT (Network Value to Transaction) Ratio, which measures the relationship between XRP’s market capitalization and its transaction activity, recently spiked to 2,806. This unusually high level indicates a sharp divergence between the market cap and actual on-chain activity. Such a disparity often precedes local price tops, signaling potential overvaluation and the risk of a short-term correction if transaction activity fails to increase.

Short-Term Holders Start Booking Profits

In addition to the supply dynamics, XRP’s on-chain data shows some signs of reduced selling pressure from short-term holders. The Spent Output for coins aged between 1 to 7 days dipped to 12.22 million, suggesting that short-term traders are holding their positions rather than exiting the market. This shift could indicate that holders are confident in XRP’s longer-term prospects, especially as the price approaches key resistance levels.

On the other hand, Ripple’s increased development activity, which surged to 20.21, is a positive technical indicator. The rise in development activity could be linked to upcoming protocol improvements or feature rollouts, which could add to investor confidence in the project’s long-term viability. However, while development activity typically signals a healthy ecosystem, its direct impact on XRP’s short-term price remains uncertain. If the market fails to see tangible results from these upgrades, the bullish sentiment may fade.

Mixed Technical Indicators and Rising Resistance

When looking at XRP’s technical indicators, there are several signs that suggest caution. XRP recently tested and briefly rejected the 0.786 Fibonacci level at $2.66 before falling back below $2.50. This rejection at a key resistance point is a critical test for the cryptocurrency’s short-term momentum. The MACD (Moving Average Convergence Divergence) shows a bullish crossover, but momentum is waning as the signal line approaches convergence. This suggests that while bullish sentiment persists, it may not be as strong as it once was.

Moreover, the price continues to face strong resistance near the $3.00 level, which was previously tested and rejected earlier in the year. For XRP to sustain its upward trajectory, it must break through these resistance levels decisively. Until then, the cryptocurrency’s price may continue to consolidate or experience corrective pressure.

MVRV Ratio Signals Possible Sell-Off Risks

Another metric to consider is the MVRV (Market Value to Realized Value) Ratio, which measures the profitability of holders. The MVRV Ratio for XRP has recovered to 253.11% after dipping in early April, suggesting that holders are in profit. However, this figure still remains well below the peaks seen in previous months, indicating that while some profit-taking has occurred, there is still potential for further upward momentum.

That said, if XRP’s price continues to rise without a corresponding increase in on-chain utility or market demand, the MVRV ratio could quickly approach danger zones, increasing the likelihood of sell-offs. This creates a risk of overvaluation, where prices outpace the underlying fundamentals of the network.

Conclusion: Is XRP’s Bullish Sentiment Sustainable?

Despite the bullish sentiment surrounding XRP, conflicting signals from both on-chain and technical data suggest that caution is warranted. On one hand, the decline in exchange reserves and the increased development activity point to long-term confidence in XRP. However, overvaluation risks, as indicated by the high NVT and MVRV ratios, and the resistance at key levels like $2.66, point to potential short-term corrections.

XRP faces critical tests in the coming days. For the bullish momentum to continue, it must break through resistance levels at $2.66 and sustain upward movement. Until then, the current uptrend faces significant challenges, and traders should remain vigilant to potential shifts in market dynamics.