XRP Market Dynamics: Dispelling the Supply Shock Myth and Assessing Retail Accessibility

The XRP market in late 2025 has been a focal point of debate, with conflicting narratives about liquidity, supply dynamics, and retail accessibility. Critics argue that dwindling exchange-held supply and elastic order books signal a "supply shock," while proponents highlight institutional demand and infrastructure upgrades as catalysts for long-term resilience. This analysis unpacks the data, Vet's liquidity framework, and the interplay between institutional positioning and retail participation to assess whether XRP's market structure is primed for stability or further volatility.

The Illusion of Scarcity: Exchange-Held Supply and Institutional Accumulation

Exchange-held XRP balances have plummeted by 45% over 60 days, dropping to 2.6 billion tokens as of November 2025. This decline, often framed as a liquidity crisis, reflects a strategic shift by large holders-whales, ETFs, and OTC desks-to consolidate supply in private custody platforms. For instance, four U.S. spot XRP ETFs have absorbed $941.7 million in assets since their launch, with 750 million XRP locked in these vehicles. Meanwhile, whale wallets (holding ≥100 million XRP) have added 340 million tokens since September 2025, pushing total large wallet holdings above 7.8 billion.

This trend suggests a deliberate move toward long-term positioning rather than speculative trading. As noted by market commentator Rob Cunningham, XRP's utility as a settlement asset requires a price range of $1,500–$3,000 to justify its infrastructure role. At current levels near $2.08, the token remains in a speculative phase, where liquidity is thin and price volatility is amplified by order book fragility.

Elastic Order Books and the "Liquidity Vacuum" Hypothesis

Vet's argument on elastic order books provides critical context for understanding XRP's volatility. In November 2025, a 254% surge in trading volume coincided with rapid order book thinning and widened spreads, creating a liquidity vacuum that accelerated a $2.50-to-$1.19 price collapse. Independent analyst Dom highlighted how Binance Futures' order book evaporated from $50 million to near zero within hours, underscoring the fragility of XRP's market structure.

This elasticity is not inherently negative. Vet argues that such dynamics can also drive sharp upside movements-potentially to $20-if market makers and OTC desks reintroduce liquidity. However, the current environment is characterized by fading capital inflows and a negative Chaikin Money Flow (CMF) metric, suggesting that buyers are struggling to regain control. The recent bullish turn in Cumulative Volume Delta (CVD) offers a glimmer of hope, but it remains to be seen whether this signals a sustainable reversal.

Retail Accessibility: A Mixed Picture of Participation and Affordability

Retail investor engagement with XRP in Q4 2025 has been inconsistent. Active addresses on the XRP Ledger peaked at 32,000 in October 2025, only to plummet to 19,400 by late November as XRP struggled to break 2-dollar resistance. This decline, coupled with a 35.47% price drop for XRP in the quarter, indicates a shift in retail behavior from speculative trading to cautious distribution. Exchange outflows of 216 million XRP ($556 million) further reinforce this trend, as retail and long-term holders offload tokens.

Price affordability remains a barrier. At current levels near $2.20, XRP is still out of reach for many retail investors, particularly when compared to Bitcoin's dominance in fast settlement use cases. However, analysts speculate that XRP could rise to $5 in Q4 2025-a 108.3% increase from current levels-driven by ETF inflows and institutional adoption. This target hinges on resolving the SEC vs. Ripple lawsuit, which has delayed regulatory clarity and stymied market momentum.

Contrasting Scarcity Claims with Market Realities

Proponents of the "supply shock" narrative often cite the 16 billion XRP held on exchanges as evidence of scarcity. However, this metric obscures the reality that 84% of XRP is now in private custody or ETFs. The reduced exchange supply has not led to a proportional price increase, as ETF inflows and whale accumulation have coincided with a 35% price drop. This divergence highlights the limitations of using exchange-held supply as a proxy for scarcity.

Moreover, XRP's fast settlement capabilities-settling transactions in seconds compared to Bitcoin's 10-minute average-position it as a complementary asset rather than a direct competitor. While Bitcoin's market trends dominate macro narratives, XRP's role in cross-border payments and institutional infrastructure remains underappreciated.

Conclusion: A Market at a Crossroads

XRP's 2025 market dynamics reflect a transition from speculative volatility to institutional maturation. The decline in exchange-held supply and elastic order books are not inherently negative but rather symptoms of a market reorienting toward long-term utility. Vet's liquidity framework underscores the dual-edged nature of these dynamics: while they enable sharp sell-offs, they also create opportunities for rapid upside if institutional demand and regulatory clarity align.

For retail investors, affordability and accessibility remain challenges, but the recent surge in active addresses and ETF adoption suggest a path toward broader participation. The key question is whether XRP's market structure can stabilize in 2026-or if the current volatility will persist as a prelude to a larger correction.