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The Bitwise CIO has recently explained how his company’s spot ETF purchases XRP, stressing that each buy removes XRP from the open market.
After Canary Capital launched the first pure spot XRP ETF on Nov. 13, four more spot XRP ETFs entered the market days later, bringing the total to five. Together, these funds have recorded one of the strongest starts among crypto ETFs, despite the pressure surrounding the broader crypto market.
XRP Price Down Despite Spot ETF Success
Specifically, the five XRP ETFs crossed $1 billion in total inflows after just 21 straight days of buying. This pace made them the second-fastest crypto ETFs to reach the milestone, behind only Bitcoin ETFs.
Interestingly, after crossing the $1 billion mark, the inflows continued over the next 10 days, pushing cumulative net inflows to $1.15 billion. The latest streak also set a record for the most consistent daily inflows among all crypto ETFs.
Despite these strong inflows, XRP’s price has moved in the opposite direction. Notably, the token has tracked the broader market lower and has not reflected the ETF demand. Since October, XRP has fallen by 34.5%, putting it on course for its weakest quarterly performance since the second quarter of 2022.
This disparity between ETF inflows and price action has raised questions about whether spot ETFs actually influence XRP’s price. Most of these doubts focus on how spot XRP ETFs buy the asset. Some investors believe ETF issuers rely mostly on over-the-counter trades, which they assume do not affect exchange prices.
Bitwise CIO Explains How They Buy XRP for Their ETF
The issue emerged during a recent episode of the Good Evening Crypto show, hosted by Abdullah Nassif and analyst Johnny. Johnny asked how spot XRP ETFs purchase XRP in practice and whether those purchases happen on exchanges, through OTC desks, or both.
In response, Bitwise’s Chief Investment Officer Matt Hougan explained how Bitwise handles XRP purchases for its own spot ETF. According to him, Bitwise executes all its purchases through OTC transactions.
When the ETF receives large inflows, such as $100 million, Bitwise contacts seven major institutional market makers to source the XRP. These firms include Jane Street, Susquehanna International Group, Goldman Sachs, Macquarie Bank, and other large institutions.
Hougan said Bitwise asks each market maker for its best price and negotiates to reduce spreads before choosing the most competitive offer. After Bitwise selects a market maker, that firm must acquire the XRP needed to complete the trade.
“Every Time We Buy XRP, It’s Taking It Out of the Market”
Hougan emphasized that this process still affects the spot market. Notably, the winning market maker goes into the market to buy XRP from available liquidity, including exchanges. The firm then delivers the XRP to Bitwise’s custodian, and Bitwise releases the cash after settlement. As a result, each ETF purchase requires someone in the market to sell XRP.
Hougan stressed that every purchase removes XRP from the circulating supply. “Every time we buy XRP, it’s taking it out of the market,” the Bitwise CIO said.
Essentially, even though Bitwise executes trades OTC, the market maker must still buy XRP from the market. In practical terms, each ETF purchase creates a direct, one-for-one reduction in available XRP.
After Hougan’s explanation, host Abdullah Nassif said the comments have settled the debate over whether OTC ETF purchases affect exchange prices. He explained that all new ETF demand ultimately flows back to exchanges through market makers.
Nassif also called attention to the potential long-term impact of steady ETF buying. He said ongoing accumulation could lead to a future turning point where demand starts to outweigh selling pressure.
Notably, XRP’s price struggles despite the ETFs’ success are a direct result of the broader bearish pressure in the market and not any unique structural weakness from XRP. Interestingly, Bitcoin also experienced similar struggles shortly after its spot ETF products launched. However, months later, the impact of these products led to a push to new heights.