Is XRP overvalued? This is a question the market has raised since altcoins exploded in November.
Some had hoped the XRP price surge would cool off, but a major correction has not occurred. However, this on-chain analysis suggests the token may soon be overvalued compared to the overall market situation.
Big risk looming for XRP
About a month ago, XRP's price broke above $1 for the first time in a while. Some market observers viewed this as a false rally. But that sentiment was wrong, and it is currently trading at $2.36.
While there have been several predictions that the token's value could rise to $5, some on-chain indicators may suggest it could be challenged. One indicator that aligns with this paper is the Network Value to Transactions (NVT) ratio.
The NVT ratio measures the ratio of an asset's market capitalization growth to its transaction growth. A declining ratio means the network's transactions are growing faster than its market capitalization, which is bullish and indicates the price is undervalued.
Conversely, a spike in the NVT ratio suggests the market capitalization is growing faster, pulling it into overvalued territory. According to Santiment (see chart above), XRP's NVT ratio has spiked to 477.
Another indicator reflecting this sentiment is the price-DAA (Daily Active Addresses) divergence. The price-DAA measures the level of price growth compared to user engagement. An increase in this metric indicates user participation is supporting the price movement, which is bullish.
However, at the time of writing, the price-DAA divergence has declined 326.13%, suggesting a decrease in the number of users interacting with XRP wallets. If this trend continues, XRP's price could drop below $2.
XRP price prediction: Downtrend likely to continue
On the 4-hour chart, XRP's price attempted to reach $2.40. However, the altcoin faced resistance at $2.35 and dropped to $2.31. Looking at the Moving Average Convergence Divergence (MACD), the 12 and 26-period exponential moving averages have crossed into negative territory.
This decline indicates weakening momentum around the token. If the momentum continues to decrease, XRP's price could fall to $2.05.
So, is XRP overvalued? This analysis suggests it may be. In a strong bearish scenario, the token could drop to $1.90. Conversely, if buying pressure increases, XRP could rise to $2.73.
