XRP ETF Flows Reveal Stagnant Price Signal

What to Know:

• XRP spot ETFs have surpassed $1 billion in AUM, but this milestone doesn’t automatically translate to price increases.
• The pace and persistence of net creations, which force authorized participants to source XRP, are more critical for price movement than the headline AUM figure.
• Factors like Ripple’s escrow system, legal considerations, and hedging activities can mute the impact of ETF inflows on XRP’s spot price.

The recent milestone of XRP spot ETFs crossing $1 billion in assets under management (AUM) has sparked interest among investors and traders. With approximately $1.14 billion spread across five issuers and net inflows near $423.27 million since mid-November, the market is closely watching the implications for XRP’s price. Understanding the mechanics behind ETFs and their impact on the underlying asset is crucial for informed decision-making.

AUM growth can be driven by factors other than new demand, such as XRP rallies or initial inventory seeding by market makers. Secondary-market trading, where investors swap existing ETF shares, also contributes to AUM without necessarily triggering new XRP purchases. Net creations, however, directly impact the underlying asset by requiring authorized participants to source XRP.

Currently, the approximately 600 million XRP held through ETFs represents about 1% of the circulating supply. While this is a significant amount that broadens access and creates a new class of holders, it’s not substantial enough to single-handedly trigger a price surge. Comparing this to Bitcoin, where US spot ETFs hold a much larger percentage of the total supply, highlights why Bitcoin’s ETF impact has been more immediately visible.

Ripple’s structured release of up to 1 billion XRP per month from escrow introduces a predictable supply cadence that influences market dynamics. Additionally, legal factors and hedging activities by authorized participants can absorb demand without causing significant price reactions. The availability of XRP futures and perps allows for synthetic selling to offset spot buying, further dampening the impact of ETF inflows.

In conclusion, the $1 billion milestone for XRP ETFs is a positive sign of growing institutional interest and accessibility. However, a deeper understanding of market mechanics is essential for investors to accurately assess the potential impact on XRP’s price. The key is to monitor net creations, the evolution of hedging strategies, and the consolidation of liquidity in accessible markets.

Related: XRP Signals Jump as Traders Bet on SEC

Source: Original article