Why XRP Underperformed in 2025: A Regulatory and Market Structure Analysis

The XRP token, once a bellwether for regulatory clarity in the cryptocurrency sector, has underperformed in 2025 despite a landmark August 2025 settlement with the U.S. Securities and Exchange Commission (SEC). While the ruling provided critical legal clarity-declaring XRP not a security in public (retail) transactions-its market trajectory has been hampered by lingering regulatory ambiguities, institutional hesitancy, and structural limitations in trading infrastructure. This analysis dissects the interplay of these factors to explain XRP's muted performance.

Regulatory Delays: A Mixed Victory

The August 2025 settlement marked a turning point, with Ripple agreeing to a $125 million civil penalty and a $50 million payment to the SEC in exchange for a dismissal of the case. The court's ruling clarified that XRP is not a security in secondary markets, a victory that spurred an 11% price spike. However, the settlement left unresolved questions about institutional sales of XRP, which were still deemed securities transactions under U.S. law. This duality created a fragmented regulatory landscape, where clarity for retail investors coexisted with uncertainty for institutional players.

Compounding this, broader regulatory frameworks remain incomplete. The SEC and Congress continue to debate how to classify digital assets, with no consensus on whether tokens should be categorized as securities, commodities, or a new asset class. Meanwhile, the SEC's ongoing case against Coinbase-focusing on the classification of digital assets in secondary markets-introduces further ambiguity. These delays have left institutions in a limbo, unable to fully commit to XRP despite its growing utility in cross-border payments and stablecoin ecosystems.

Institutional Hesitancy: Access, Liquidity, and Supply Dynamics

Institutional adoption of XRP has been stymied by three key challenges: limited direct access, liquidity constraints, and concerns over supply dynamics.

1. Access Barriers: Ripple's acquisition of Hidden Road to create Ripple Prime-a global prime brokerage offering clearing, financing, and OTC trading-was a significant step toward institutional on-ramping. However, institutions still face hurdles in sourcing XRP directly from Ripple, as the company does not offer primary sales to institutional investors. Instead, they must rely on exchanges, which lack the depth and compliance infrastructure required for large-scale transactions. This reliance on secondary markets exacerbates liquidity risks and limits the ability of institutions to build long-term positions.

2. Liquidity Constraints: While Ripple's On-Demand Liquidity (ODL) service processed $1.3 trillion in transactions in Q2 2025, institutional-grade liquidity remains fragmented. Ripple Prime's activity tripled post-acquisition, but the market is still dominated by retail and speculative flows. Additionally, XRP's total supply of 100 billion tokens, with a significant portion held by Ripple, raises concerns about volatility and potential sell-side pressure if large holders begin liquidating their stakes.

3. Regulatory Uncertainty in Custody: Despite the Trump administration's pro-crypto stance-including the rescission of SEC Staff Accounting Bulletin 121, which had barred banks from offering digital asset custody services-custody solutions for XRP remain underdeveloped. Institutions require robust, compliant custody options to hold and transact in XRP, but the market lacks standardized solutions. This gap has slowed the adoption of XRP in institutional portfolios, even as Ripple's RLUSD stablecoin (now valued at $1 billion in market cap) demonstrates the token's utility in settlement and liquidity provision.

Market Structure: ETF Delays and Macroeconomic Headwinds

The potential approval of XRP spot ETFs has been a critical catalyst for institutional adoption. Nine asset managers filed applications in 2025, with analysts estimating $5–7 billion in inflows by 2026 if approved. However, the SEC's delayed decision has created a vacuum of confidence. Institutions, which rely on structured products like ETFs to manage risk and liquidity, are hesitant to commit capital without regulatory certainty.

Macroeconomic factors have also weighed on XRP's performance. While Ripple's payment network and RLUSD have driven real-world utility-processing high-cost corridors and reducing cross-border transaction times-broader market volatility and technical weaknesses (e.g., XRP's price hovering near the $2.10 level) have dampened investor sentiment. On-chain metrics, such as declining exchange reserves and elevated transaction volumes, suggest ongoing settlement activity but also highlight the token's susceptibility to short-term macro shifts.

Conclusion: A Path Forward

XRP's underperformance in 2025 is not a reflection of its intrinsic value but rather a symptom of systemic bottlenecks. Regulatory delays have left institutions in a gray area, while structural limitations in liquidity and custody have hindered large-scale adoption. The pending XRP ETF approvals and Ripple's infrastructure investments (e.g., Ripple Prime, RLUSD) signal a long-term bullish narrative, but these benefits will only materialize with greater regulatory clarity and institutional infrastructure.

For XRP to reclaim its momentum, market participants must navigate the delicate balance between regulatory compliance and innovation. The token's role in cross-border payments and stablecoin ecosystems provides a strong foundation, but without addressing the institutional access and liquidity challenges, its full potential will remain unrealized.