A spot XRP ETF has the potential to significantly reshape market liquidity. Institutional funds require substantial amounts of the underlying asset, and this demand can often outpace the market's ability to supply it. When this imbalance occurs, liquidity tightens, leading to more pronounced price reactions. This scenario creates an environment where even moderate buying pressure can drive significant market shifts.
The issue of where ETF issuers will source the necessary XRP has been highlighted on X, sparking renewed attention to the dynamics of supply, demand, and liquidity within the XRP ecosystem. This discussion is particularly relevant as institutional interest in digital assets continues to grow.
How ETF Issuers Acquire XRP
To back investor shares, ETF issuers must hold actual XRP. Their initial approach is to utilize Over-The-Counter (OTC) desks, which typically offer deep liquidity with minimal market slippage. However, the supply available through OTC desks is not limitless. Once large blocks of XRP are absorbed from these desks, issuers are compelled to turn to spot exchanges.
Spot exchanges generally operate with thinner liquidity compared to OTC desks. When substantial buyers enter the market on these exchanges, order books can clear rapidly. This situation forces issuers to purchase 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 significant point of confusion revolves around Ripple’s escrow. Ripple cannot directly sell XRP from its escrow accounts to ETF issuers. The release of XRP from escrow follows a predetermined schedule, and every transaction is recorded on the public ledger. These releases are not discretionary and cannot be rerouted to create special supply channels for institutional buyers.
Furthermore, Ripple has stated that it does not supply XRP quietly or off-the-record to institutional buyers. Any large-scale movement of XRP from escrow would invariably attract public attention and on-chain scrutiny, neither of which has been observed.
Why Supply Shock Is Increasingly Likely
A supply shock occurs when the available liquidity in the market becomes insufficient to meet incoming demand. While XRP's circulating supply may appear large, only a fraction of it is readily available on exchanges. A significant portion of XRP is held by long-term holders in private wallets, and escrowed XRP is locked and inaccessible until its scheduled release. Consequently, the true liquid supply is considerably smaller than the total circulating supply.
We are on X, follow us to connect with us :- @TimesTabloid1
— TimesTabloid (@TimesTabloid1) June 15, 2025
ETF issuers are required to absorb the liquidity that is actually available in the market. If multiple major issuers enter the market simultaneously, the impact on liquidity will be amplified. Even routine ETF inflows could rapidly deplete the available XRP on exchanges. Once exchange liquidity thins out, prices can experience sharp and significant increases.
What the Market Should Expect
The introduction of a spot ETF will create a consistent, structural demand for XRP. This demand will manifest daily as new investors purchase ETF shares. Over time, as issuers accumulate XRP to back these shares, they will effectively remove it from circulation, thereby reducing available supply. This reduction in supply, coupled with sustained demand, increases the likelihood of price-driven liquidity squeezes.
Market participants should anticipate more volatile price movements, faster reactions to news, and periods of reduced liquidity. Investors should prepare for increased competition for available XRP as institutions scale their allocations.
In conclusion, the warning from Common Sense Crypto underscores a fundamental market reality: ETF issuers cannot rely on Ripple’s escrow for a direct supply of XRP. They must acquire XRP through open market purchases. As OTC reserves diminish, issuers will increasingly turn to exchanges, where liquidity is more constrained. This process has the potential to trigger a genuine supply shock, fundamentally altering XRP’s market dynamics and accelerating long-term demand pressures.