XRP supply shock! 180 million coins flow out of the exchange, ETF absorbs 800 million, fearing to trigger a squeeze.

In the past few weeks, over 180 million XRP have flowed out of various exchange platforms, and the market speculates that the shrinkage of liquidity at exchanges is faster than expected. This decline comes at a time when the demand for XRP ETFs from institutional investors continues to rise, with products like Canary Capital attracting over 800 million dollars in inflows within a few weeks. Market analysts warn that unless there is a sustained and stable influx of funds, the decrease in supply will not be enough to trigger structural pressure.

ETF Driven Demand: $800 Million Capital Inflow and Exchange Exodus

(Source: Glassnode)

Canary Capital's spot fund is one of the XRP ETFs that started trading in mid-November, attracting over $800 million in capital inflow in just a few weeks. This figure is extremely rare among newly launched cryptocurrency ETFs, demonstrating strong demand from institutional investors for XRP. Along with the other three XRP ETF products, the total inflow scale makes it one of the most successful cryptocurrency ETF launches of 2025.

At the same time, according to liquidity data from CoinMarketCap, nearly 300 million XRP have been withdrawn from Binance's XRP reserves since late October. This timing further corroborates the assertion that ETF-driven demand is driving tokens out of circulation. As the world's largest cryptocurrency exchange, changes in Binance's reserves often represent overall market trends. The outflow of 300 million is a significant proportion of Binance's XRP reserves, indicating that this is not a small-scale capital movement, but rather a large-scale structural transfer.

Wider data shows that overall exchange reserves have decreased by over 180 million XRP in the past few weeks. This figure includes the total of major CEXs. When ETF inflows reach 800 million USD while exchanges see outflows of 180 million tokens (approximately 400 million USD at current prices), the scale difference between the two suggests that ETF issuers may be accumulating XRP through various channels, including over-the-counter markets.

During the entire accumulation phase, the price of XRP has been hovering around $2.20, indicating that institutional investors may be buying in large quantities through channels such as over-the-counter trading and dark pools, rather than engaging in frequent trading on the order book. This operational approach is typical of large institutions, as buying in large quantities on the open market would drive up prices and increase the average cost. Through OTC and dark pools, institutions can accumulate a large amount of chips without affecting market prices.

Three Major Evidence of XRP Supply and Demand Imbalance

Exchange reserves plummet: 180 million XRP flowed out, with 300 million flowing out from a single exchange, Binance.

ETF Fund Surge: $800 million in institutional funds flowing in, demand far exceeds supply in the public market.

Price Stability Fluctuation: $2.20 sideways indicates that institutions are accumulating through OTC, avoiding pushing up the price.

Supply Shock Narrative: XRP Edition Bitcoin Squeeze?

Analysts point out that more and more people believe that ETF capital inflows will ultimately drown out those undeveloped liquidity reserves. This narrative draws on the experience of Bitcoin after the launch of the ETF in 2024, when exchange Bitcoin reserves also saw a significant decline, followed by a price surge from $40,000 to $126,000, an increase of over 200%.

However, the situation with Bitcoin is different because XRP also needs to consider Ripple's plans for the release of custodial supply, and its distribution model is also more extensive. Ripple holds a large amount of XRP in custody, which is regularly released to the market. Although the company has promised to control the pace of releases, this potential supply always hangs over the market like the sword of Damocles. When the market discusses supply shocks, Ripple's custodial releases must be taken into account.

Nevertheless, the continuously depreciating exchange balances indicate a tightening market environment, and if there is an influx of funds, the situation may worsen further. Liquidity experts warn that when over-the-counter reserves are insufficient to absorb demand, retail platforms often reflect market shocks. This situation occurred during the Bitcoin bull market in 2021, when exchange Bitcoin reserves fell to historic lows, and even moderate buying pressure could drive prices up significantly.

The core logic of the supply shock narrative lies in the exhaustion of liquidity. When the available XRP for sale on the exchange decreases, and the ETF needs to continue buying to meet subscription demand, the price will be forced to rise to attract new sellers. However, this squeeze will only occur if the inflow of ETF funds is sustained and accelerated. If the inflow slows down or reverses, the decline in the exchange's reserves may instead pose a liquidity risk, making prices more susceptible to plummeting during sell-offs.

Over-the-Counter Trading and Dark Pools: The Buffering Effect of Hidden Liquidity

Market analysts warn that unless there is a sustained and stable influx of funds, the reduction in supply will not be sufficient to trigger a structural squeeze. Over-the-counter trading and dark pool liquidity continue to buffer significant market pressures. This is key to understanding the current situation of XRP.

The peer-reviewed literature of the Journal of Financial Economics helps to understand the role of the over-the-counter market in alleviating the early accumulation pressure of institutions. Research indicates that in most crypto assets, large buyers operate for weeks or months using potential Liquidity before the spot market imbalance manifests. This model supports the argument that the exchange withdrawal trend of XRP is the initial stage of a multi-stage tightening process.

The scale of the over-the-counter trading market is often underestimated. According to industry estimates, the OTC trading volume of cryptocurrencies may be 2-3 times that of publicly traded exchanges. This means that when we see the exchange reserves decrease by 180 million coins, there may actually be several times that amount of XRP flowing in the OTC market. This hidden liquidity makes the occurrence of supply shocks more complex and uncertain.

Dark pools are another important source of liquidity. Large institutions and market makers conduct large transactions in dark pools, and these transactions do not appear on the public order book. When ETFs need to purchase a large amount of XRP, they typically first look for sellers in the dark pool, only turning to the public market when dark pool liquidity is insufficient. This mechanism helps keep prices relatively stable even when institutions make large purchases.

However, the liquidity in dark pools and OTC is not infinite. If the inflow of ETF funds continues to accelerate, these hidden liquidity reserves will eventually be depleted. Once this critical point is reached, the ETF will be forced to bid purchase on the open market, at which point the supply shock will truly manifest. The question is, how far are we from this critical point? Currently, no one can accurately answer, as the data from OTC and dark pools is opaque.

Market Fate: Continuous Inflow or Fleeting Moment?

The future of XRP largely depends on the stability of ETF demand. Traders are currently closely monitoring the balance of exchange rates, over-the-counter markets, and ETF capital flows to determine whether XRP is in a supply-constrained period or merely in a temporary state of supply and demand imbalance. The discussion focuses on the role of institutional participation in changing the liquidity trends of the entire digital asset market.

If the ETF fund inflows can maintain the current pace of net inflows of tens of millions to over a hundred million dollars per week, then the narrative of supply shock will become more credible. As the exchange reserves continue to decline and the over-the-counter liquidity gradually depletes, prices will eventually be forced to rise to balance supply and demand. In this case, XRP may replicate Bitcoin's trend after the ETF launch, achieving exponential growth within months.

However, if the inflow of ETF funds slows down after the initial hype, the current decline in exchange reserves may only be a short-term phenomenon. Once institutional investors complete their initial allocations, subsequent demand may not be sufficient to maintain supply pressure. At this point, Ripple's custodial releases will become a new source of supply, balancing the market. In this scenario, the price of XRP may continue to oscillate within the current range, and the supply shock narrative will collapse on its own.

The third possibility is the most extreme scenario: a reversal of ETF fund inflows, resulting in net outflows. Although this situation currently seems unlikely, it is not impossible. If a systemic risk emerges in the broader cryptocurrency market, or if the regulatory environment deteriorates again, institutional investors may withdraw from the ETF. At this point, the decline in exchange reserves could become a liquidity risk, as the lack of sufficient sell order depth may lead to more severe volatility when prices drop.

Based on the current data, the likelihood of the first scenario (continuous inflow leading to supply squeeze) is increasing. If the inflow rate of 800 million USD can be maintained, combined with the outflow trend of 180 million XRP from exchanges, the supply-demand imbalance will become more apparent in the coming months. Key observation indicators include: whether the weekly ETF net inflow remains positive, whether exchange reserves continue to decline, and whether Ripple's custody release pace accelerates.

For investors, the current XRP supply controversy presents a potential asymmetric opportunity. If the supply shock narrative is ultimately confirmed, the price upside could far exceed current market expectations. If the narrative collapses, the downside risk is relatively limited, as strong support has already formed around the $2.20 mark. This risk-reward ratio is worth close attention.