A spot XRP ETF can reshape market liquidity. Institutional funds require large amounts of the underlying asset, and that demand often arrives faster than the market can supply it. When this happens, liquidity tightens, and price reactions become sharper. This creates an environment where even moderate buying pressure can generate major market shifts.
Common Sense Crypto highlighted this issue on X, noting widespread confusion about where ETF issuers will obtain the XRP they need. Their clarification sparked renewed attention to the mechanics of supply, demand, and liquidity within the XRP ecosystem. The discussion is timely, especially as institutional interest in digital assets continues to grow.
How ETF Issuers Acquire XRP
ETF issuers must hold actual XRP to back investor shares. They begin with OTC desks because these channels offer deep liquidity with minimal market slippage. However, OTC supply is not infinite. Once large blocks are absorbed, issuers must turn to spot exchanges.
Exchanges operate with thinner liquidity than OTC desks. When large buyers enter the market, order books clear quickly. This forces issuers to buy XRP at progressively higher prices.
Just to clarify Ripple cannot sell the escrow or $xrp to ETF issuers! I see post stating Ripple is selling quietly to ETF issuers like Franklin Templeton & Canary etc.. The reason we will see scarcity is because ETF issuers will turn to the exchanges to buy $xrp once the OTC… pic.twitter.com/UuhIiXxZCQ
— Common Sense Crypto (@TheCSCrypto) December 3, 2025
Why Ripple’s Escrow Cannot Be Tapped for ETF Supply
A key point of confusion involves Ripple’s escrow. Ripple cannot simply sell escrowed XRP directly to ETF issuers. Escrow releases follow a fixed schedule, and every movement appears on the public ledger. These releases are not discretionary. They cannot be redirected to create special supply channels for institutions.
Ripple has also clarified that it does not supply XRP quietly or off-the-record to institutional buyers. Any large movement from escrow would trigger public discussion and on-chain scrutiny. There is no evidence of such transfers.
Why Supply Shock Is Increasingly Likely
A supply shock occurs when available liquidity becomes smaller than incoming demand. XRP’s circulating supply looks large, but only a small fraction is available on exchanges. Long-term holders keep most XRP in private wallets. Escrowed XRP is locked and cannot be accessed at will.
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— TimesTabloid (@TimesTabloid1) June 15, 2025
ETF issuers must absorb the liquidity that is actually available. If several major issuers enter the market at once, the impact becomes amplified. Even routine ETF inflows could drain exchanges rapidly. Once exchanges thin out, prices can react violently.
What the Market Should Expect
A spot ETF introduces steady, structural demand. This demand repeats daily as new investors purchase ETF shares. Over time, the issuers accumulate XRP and remove it from circulation. This reduces available supply and increases the chances of price-driven liquidity squeezes.
Traders should expect sharper moves, faster reactions, and periods of reduced liquidity. Investors should expect increased competition for available XRP as institutions scale their allocations.
In conclusion, Common Sense Crypto’s warning highlights a simple truth. ETF issuers cannot rely on Ripple’s escrow for supply. They must buy XRP directly from the open market. Once OTC reserves shrink, issuers move to exchanges, where liquidity is thinner.
This process can trigger a genuine supply shock, reshaping XRP’s market dynamics and accelerating long-term demand pressure.
Disclaimer: This content is meant to inform and should not be considered financial advice. The views expressed in this article may include the author’s personal opinions and do not represent Times Tabloid’s opinion. Readers are urged to do in-depth research before making any investment decisions. Any action taken by the reader is strictly at their own risk. Times Tabloid is not responsible for any financial losses.
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