The XRP price may be at a significant risk of a big crash this year even as it faces major catalysts in the coming months. Ripple has formed the head and shoulders chart pattern, a popular bearish sign in the market that points to double-digit losses in the coming weeks.
XRP price has formed a risky pattern
The daily chart shows that the XRP price has formed a high-risk chart pattern that may push it much lower in the coming weeks.
It has formed a head and shoulders pattern whose neckline is at $2 and the head is at the year-to-date high of $3.40. The right and left shoulders are at $2.88.
XRP price has also crashed below the 50-day Exponential Moving Average (EMA), a sign that bears are gaining momentu. Therefore, a drop below the important support level at $2 will validate this view and point to more downside in the coming weeks.
Such a crash may move to the key support at $1.1395, the 78.2% Fibonacci Retracement level. The price target is about 50% below the current level. The bullish view will become invalid if the coin rises above the right shoulder at $2.74, which also coincides with the 23.6% Fibonacci Retracement level.
Wyckoff Theory suggests Ripple may crash
There is another reason that explains why the XRP price may crash soon: Wyckoff Theory. This theory, which is about 95-year old today, explains how asset prices move over time.
According to Richard Wyckoff, an asset will likely stay in a consolidation phase for months or even years. In Ripple’s case, this consolidation, which is a form of accumulation, happened for over three years.
The Wyckoff Theory states that an asset then moves into a markup phase. This phase starts when there is a small spark that triggers a surge, leading to more demand than supply or the Fear of Missing Out (FOMO).
In XRP’s case, the spark was Donald’s victory and the expectation that the Securities and Exchange Commision (SEC) would drop charges against Ripple. These hopes led to a surge in positive social sentiment about XRP and a surge to $3.41.
The XRP price has now been in the distribution phase of the Wyckoff Theory in the past few weeks. This phase is characterized by a lack of trend and some volatility as bulls and bears battle it out. Some unique patterns like a head and shoulders pattern and a rising wedge typically emerges in this phase.
Therefore, a break below the head and shoulders neckline will usher in the next stage, which is known as the markdown. While the markup is characterized by FOMO and animal spirits, the markdown is known for panic selling.
Good XRP news has been priced in
The XRP price may crash even when Ripple receives some good news. The first good news will come from the SEC, which will likely abandon its appeal against Ripple Labs. It has already tossed lawsuits against companies like Coinbase and Uniswap, and is reviewing other similar lawsuits. Uniswap said:
“The conclusion of our investigation is not only welcome – and just – relief for Uniswap Labs, but also for the broader DeFi community of builders, users, and developers working toward a better financial system for all of us.”
The other good news is that the SEC will move ahead and approve a spot Ripple ETF later this year. Such a fund will likely lead to more inflows from Wall Street investors as we have seen with Bitcoin and Ethereum.
The XRP Ledger is also growing and continuing to attract more developers. Therefore, the XRP price may crash because these good news have already been priced in by market participants. In other words, they will not catch any investor by surprise when they happen.
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