XRP Price Forms Risky Head and Shoulders Pattern: Is a Major Crash Ahead?

XRP has recently faced a sharp decline, retreating to a crucial support level and raising concerns about the possibility of further losses in the coming days. As of Monday, the price of Ripple’s XRP fell to $2.40, marking a nearly 30% drop from its highest level this year and officially placing the asset in a bear market.

This recent downturn in XRP comes amid broader weakness in the cryptocurrency market, with Bitcoin struggling to stay above the $100,000 threshold. Additionally, market sentiment has been affected, as the crypto fear and greed index has dropped to the “fear” zone, registering a value of 38, while the altcoin season index has also seen a decline.

Technical Indicators Signal Potential for Further Losses

From a technical standpoint, XRP is showing several bearish signals that suggest it may face further declines. On the daily chart, the price has fallen below both the 50-day and 100-day moving averages, signaling that sellers are in control of the market. These moving averages are often seen as critical support levels, and a drop below them typically signals a continuation of the downtrend.

In addition to this, XRP has formed a head and shoulders pattern, a classic bearish reversal pattern. This formation consists of two shoulders, a head, and a neckline. Currently, XRP’s price has dropped to the slanted neckline, which aligns with a key pivot reversal level known as the Murrey Math Lines. A breakdown below this neckline would confirm the pattern and could lead to further downside movement. The next reference level to watch is $1.79, which represents the lowest swing this month. If XRP breaks below this level, the next support level is found at $1.6130, corresponding to the 61.8% Fibonacci retracement.

Wyckoff Theory Suggests Further Weakness

In addition to the technical patterns, another risk factor is the potential transition of XRP into the distribution phase of the Wyckoff Theory. According to this theory, XRP spent much of last year in the accumulation phase, characterized by sideways price action. The coin then entered the markup phase in November, during which it surged by over 400%. However, the current price action suggests that XRP has now moved into the distribution phase, which is marked by an increase in supply, a decrease in demand, and panic selling. If XRP breaks below the neckline of the head and shoulders pattern, it would confirm its entry into the markdown phase, indicating further downside.

Potential Bullish Catalysts

Despite the bearish outlook, there are some potential bullish catalysts that could help XRP rebound. One of the most notable is the ongoing legal battle with the U.S. Securities and Exchange Commission (SEC). The recent decision by the SEC to end its lawsuits against Coinbase and Robinhood has raised hopes that it may take a similar stance with Ripple.

Additionally, there is growing speculation that the SEC may approve an XRP ETF. With approval odds rising to 80%, this move could attract significant inflows into the asset. JPMorgan estimates that the approval of an XRP ETF could draw over $8 billion in funds this year, which could provide a much-needed boost to the price of XRP.

XRP faces significant downside risks in the short term, as the formation of a head and shoulders pattern and the shift into the distribution phase of the Wyckoff Theory suggest the potential for further declines. However, the legal developments surrounding Ripple and the possibility of an XRP ETF approval provide some hope for a rebound. Traders and investors will need to closely monitor these factors as they weigh the risks and rewards of holding XRP in this volatile market environment.