XRP, the Ripple blockchain’s native token, is up more than 600 percent in 2021 even though it remains in a tense court battle with the US Securities and Exchange Commission over its legal status.

The world’s fourth-largest cryptocurrency by market cap now, XRP has continued its climb, entering the second quarter. According to data provided by Messari, the token has surged around 194 percent in April alone. In comparison, its top rivals, Bitcoin and Ethereum, are up almost 6.5 percent and 12.5 percent, respectively.

If XRP’s upside acceleration continues, it can replace Binance exchange’s BNB token to become the third-largest cryptocurrency by market cap. BNB is up 65 percent quarter-to-date.

Bearish Divergence

But the rally in the Ripple token market comes on the heels of bearish alerts. One of the primary reasons XRP/USD could undergo a strong downside correction is a bearish divergence between its rising bids and decreasing momentum.

In retrospect, the Relative Strength Indicator (RSI) on XRP’s four-hour chart has formed a sequence of lower highs after topping out on April 5. On the other hand, its price has logged higher highs. Together, they indicate weakness in XRP’s uptrend, a phenomenon otherwise known as bearish divergence.

Bulls remain enthusiastic, nonetheless, partially because Ripple Labs, the San Francisco blockchain company behind XRP, has walked unharmed so far in an ongoing lawsuit filed against it by the SEC. That includes a recent court ruling that stopped the US agency from looking into the personal accounts of Ripple Labs’ chief executive Brad Garlinghouse and co-founder Chris Larsen.

Meanwhile, Ripple Labs recently won another court battle against one of its early-stage investors, Tetragon Financial Group. According to James K. Filan, a defense lawyer in the US, the ruling could serve as the basis to fight the SEC’s allegation against Ripple Labs. The agency alleges that the Ripple management sold illegal securities in the form of XRP tokens.

Technical Outlook

But technically, it is time for bullish traders to be proactive about risk assessment. That means using tighter stops, protecting options, or just reviewing their portfolio with assets that offset XRP’s overvaluation risks. It also looks ideal to short the XRP market by buying put options as a form of hedging exercise.

Ripple Labs has walked closer to beating the SEC, but the legal battle could go on for a while. Any uncertainty over XRP’s legal status — whether or not it’s a security token — would increase downside risks in the token’s market.