XRP Spot ETFs: How Regulatory Approval Could Trigger a Scarcity-Driven Price Surge

The approval of XRP spot ETFs in the United States could catalyze a dramatic shift in the token's market dynamics, mirroring the transformative effects seen with Bitcoin and Ethereum ETFs in 2024–2025. By removing a significant portion of XRP's circulating supply through institutional demand, these ETFs could create scarcity-driven price momentum, potentially propelling the asset into a new era of institutional adoption and mainstream legitimacy.

Historical Precedent: ETFs as Supply Squeezers

The approval of spot ETFs for Bitcoin and Ethereum demonstrated a clear pattern: institutional demand for physical tokens forces liquidity off exchanges, tightening supply and amplifying price appreciation. For instance, the first U.S. Bitcoin ETFs, approved in January 2024, saw BlackRock's IBIT amass $10 billion in assets by May 2024 alone, according to Analytics Insight. This influx required the purchase of actual Bitcoin, effectively removing ~1.5% of the circulating supply and triggering a price surge to $124,474 by August 2025, per Dropstab research. Similarly, Ethereum ETFs absorbed 5.1% of its circulating supply by mid-2025, with inflows directly correlating to ETH's 215% price rally, as reported by Yahoo Finance.

The mechanism behind this dynamic lies in the in-kind creation/redemption process used by ETFs. Authorized participants (APs) exchange baskets of the underlying asset (e.g., XRP) for ETF shares, locking tokens in custody and reducing market liquidity. This process, as seen with Bitcoin and Ethereum, creates a self-reinforcing cycle: tighter supply increases demand, while ETF inflows stabilize price floors and reduce volatility, a dynamic explained by CryptoSlate.

XRP's Unique Supply Dynamics and ETF Catalysts

XRP's supply structure presents a compelling case for ETF-driven scarcity. With a total supply of 100 billion tokens and ~59.77 billion currently circulating, according to Blockchain Magazine, the asset already exhibits a natural deflationary bias due to its fixed issuance model. However, the token's liquidity has been further compressed: major exchanges like Coinbase now hold less than 10% of the circulating supply, a 90% drop since 2023, per CoinPedia. This pre-existing liquidity crunch sets the stage for a potential supply shock if XRP ETFs are approved.

Analysts project that a single XRP ETF could absorb 1–4% of the circulating supply, with multiple ETFs (e.g., proposals from Franklin Templeton, Bitwise, and 21Shares) collectively removing up to 5 billion tokens from the open market, according to The Crypto Basic. For context, this would represent a 10x larger supply reduction than Ethereum's ETF-driven squeeze in 2025, per CoinSpeaker. The impact would be twofold:
1. Scarcity Premium: With fewer tokens available for trading, retail and institutional buyers would face heightened competition, driving up bid prices.
2. Price Floor Stabilization: ETFs act as a "floor" for price discovery, as APs must purchase XRP to create new shares during inflows, according to LiquidityFeed.

Regulatory Clarity and Institutional Momentum

The SEC's withdrawal of its XRP lawsuit appeal in March 2025 has cleared a critical regulatory hurdle, with pending ETF applications from major asset managers expected to receive rulings by late October 2025, per Holder.io. Institutional demand is already building: custodians like Coinbase and Binance have reported increased XRP accumulation from ETF-ready portfolios, with projected inflows reaching $11 billion if approvals materialize, according to OKX.

This momentum is further amplified by XRP's utility in cross-border payments and its growing adoption in real-world asset (RWA) tokenization projects. Unlike Bitcoin and Ethereum, XRP's use case is tied to functional demand in financial infrastructure, creating a dual driver of value-speculative ETF-driven scarcity and utility-driven adoption, as argued by Timestabloid.

Risks and Counterarguments

Critics argue that XRP's legal status remains unresolved, as it is not yet classified as a commodity under U.S. law. A regulatory reversal could disrupt ETF approvals and trigger volatility. Additionally, large ETF inflows might lead to short-term price overshooting, creating risks for retail investors. However, the structural parallels to Bitcoin and Ethereum's ETF trajectories suggest that these risks are manageable, particularly as institutional players employ TWAP (time-weighted average price) and VWAP (volume-weighted average price) strategies to minimize market impact, per CryptoSlate.

Conclusion: A Scarcity-Driven Bull Case

If XRP spot ETFs are approved, the asset could follow a trajectory similar to Bitcoin and Ethereum, with supply absorption and institutional demand driving a multi-year bull market. Historical data indicates that ETF inflows correlate with 150–200% price gains in the first 12 months post-approval, according to an XT scorecard. For XRP, the combination of a compressed circulating supply, regulatory clarity, and functional utility positions it to outperform broader crypto markets. As one analyst put it, "XRP ETFs aren't just about price-they're about legitimacy. Once institutional money starts buying XRP, the rest of the market will follow," a perspective noted by The Currency Analytics.