XRP has seen an explosive surge in price, with the token recently hitting $2.23. However, this rally has raised concerns about whether the altcoin is overvalued or if it has the potential to continue climbing. While XRP’s performance has been impressive in recent weeks, on-chain metrics suggest there may be risks ahead, as signs of weakening momentum and overvaluation begin to surface.

XRP’s NVT Ratio Signals Overvaluation

One of the key indicators pointing to potential overvaluation is the Network Value to Transaction (NVT) ratio for XRP. The NVT ratio compares the market capitalization of an asset to its transaction volume, shedding light on whether a token’s price is supported by healthy network activity. A high NVT ratio can indicate that the asset is overpriced relative to its actual usage.

XRP’s NVT ratio has spiked sharply in December, signaling that its price surge is not fully supported by an increase in transaction activity on the network. While XRP’s price sits at $2.23, the elevated NVT ratio suggests that its market capitalization is growing faster than its transaction volume, which raises concerns about the sustainability of this rally. If transaction volumes fail to catch up with the price, XRP could be at risk of a correction.

Declining Network Activity and DAA Divergence

Another concerning trend for XRP is the divergence between its price and active network addresses. The Price-Daily Active Addresses (DAA) metric tracks user engagement by monitoring the number of unique addresses interacting with XRP. Despite the price surge, the DAA for XRP has seen a significant decline, plummeting by 326.13%.

This stark decline in active addresses shows that the recent price rally is not being backed by strong on-chain activity. A drop in user engagement suggests that the price movement may be driven more by speculative interest rather than organic growth. If this divergence persists, it could signal that the rally lacks the fundamental support needed for sustained price growth, increasing the likelihood of a pullback.

Bearish Momentum Persists in the Short Term

On technical charts, XRP’s price movement continues to show signs of bearish pressure. After attempting to push above $2.40, the token faced resistance at $2.35 and experienced a pullback to $2.31. The MACD (Moving Average Convergence Divergence) indicator, which is used to track trends, is currently in the negative region, reinforcing a bearish outlook for XRP in the short term.

This declining momentum suggests that XRP may struggle to break past key resistance levels and could face further declines. A drop to $2.05 or even $1.90 is possible if bearish sentiment intensifies. However, if buying interest picks up, the token may be able to regain momentum and test higher levels, with $2.73 serving as a potential upside target.

The Outlook for XRP

XRP’s current price of $2.23 is under pressure from both on-chain data and technical indicators, raising concerns about the sustainability of its recent rally. The high NVT ratio, combined with the decline in active addresses, signals that the price surge may be out of sync with the token’s actual network activity. Additionally, short-term bearish momentum, as seen in the MACD and price chart, suggests that further downside could be in store for XRP.

While the token may still have potential for a rebound if buying interest picks up, traders should approach with caution. A breakout above $2.35 could signal a continuation of the bullish trend, but until then, XRP remains vulnerable to further downside risks. As the token consolidates around $2.24, market participants should carefully monitor its price movements and on-chain activity to gauge whether this rally is sustainable or if a correction is imminent.