[DigitalToday reporter Yunseo Lee (이윤서)] An analysis said XRP has entered a market in which volatility has fallen sharply as reduced trading activity coincides with shrinking leverage.

On May 19 (local time), blockchain outlet The Crypto Basic reported that CryptoQuant analyst CryptoOnchain sees XRP currently passing through a "volatility gap" zone, and that the price could rise quickly if a strong catalyst emerges on macroeconomic or fundamental fronts.

The key point of the analysis is not price weakness itself but a broad cooling of market participation. XRP rose as high as $1.58 on May 14, then retreated along with a broader drop in the cryptocurrency market. Bearish pressure strengthened further after high U.S. inflation data was released.

On-chain indicators also pointed to a slowdown. The number of daily transactions on the XRP Ledger fell 20% from three months ago and has now dropped to about 1.78 million a day. CryptoOnchain assessed that the decline in network activity shows weakening organic demand for use.

A similar trend was seen in derivatives markets. Binance's funding rate fell into negative territory at -0.003. Total liquidations shrank to several thousand dollars a day, down 99%. CryptoOnchain viewed that as a typical signal seen in a quiet market with limited trader interest. Futures market participants are leaning somewhat bearish and are paying costs to maintain short positions.

It did not view the derivatives market as entirely negative. Binance's estimated leverage ratio stands at 0.173, well below the recent six-month high of 0.260. That means the structure that could trigger sharp short squeezes or long squeezes in either direction has weakened as excessive leverage has been flushed out. It appears to be a stagnant phase in which direction has disappeared, but it can also be interpreted as a precursor to big volatility.

CryptoOnchain said price swings often follow periods of low liquidity and that the market may be recalibrating ahead of the next rally. It also saw the starting point as likely to be macroeconomic factors or fundamental developments.

A similar warning emerged in technical analysis. Market analyst Ali Martinez (알리 마르티네즈) said the Bollinger Band width on XRP's three-day chart has narrowed to its tightest level in more than a year. He said such tight volatility compression is often followed by a sharp price expansion.

Martinez identified the $1.50 to $1.29 range as a "no-trade zone" for now. That means traders should respond after confirming a breakout or breakdown rather than entering hastily before direction is confirmed. He said if a three-day candle closes above $1.50, bullish momentum would be confirmed and $1.80 could be the next target. If it closes below $1.29, he added, the bullish scenario weakens and the price could slide toward the psychological support level of $1.00.

In the end, the current XRP market is closer to a phase in which falling transactions, shrinking leverage and declining liquidity are appearing at the same time than to a simple price drop. In that situation, the market may remain in a narrow range until a clear catalyst emerges, but once direction is set, price swings could instead grow larger, the analysis said.

$XRP is ready for a big price move! I'm tracking the tightest Bollinger Band squeeze on the XRP's 3-day chart in over a year. When volatility compresses this tightly, it’s a signal that a violent price expansion is approaching. This current compression zone is a definitive… pic.twitter.com/TLBejKAl1D