During the past year, ETF funds have been one of the biggest drivers for the rise of Bitcoin and Ethereum.
The idea is simple: the influx of massive liquidity through these funds increases demand for the underlying currency, thus raising the price.
With the recent launch of an ETF fund for XRP, questions have begun to arise about how this development could affect the currency.

What are exchange-traded funds (ETFs)?

An ETF is an investment tool through which companies issue shares backed by a real asset, with each share representing a portion of that asset.
The goal is for the investor to benefit from the movement of the asset itself, but with the characteristics of traditional shares such as ease of trading and liquidity.

A famous example is gold funds:

  • Investing directly in gold requires high storage, protection, and liquidation costs.

  • Whereas through a gold ETF, one can invest in the same price more easily and securely.

By the same principle, cryptocurrency funds emerged. They started with Bitcoin and later expanded to Ethereum.
As of the time of writing, there are about 20 ETFs listed on the US stock exchange, most of which are for Bitcoin and the rest for Ethereum.
Today, Bitcoin funds account for 6.6% of Bitcoin's market value, while Ethereum funds account for 4.5%.
These are relatively large numbers for an emerging sector, opening up similar hopes for XRP.

In recent years, Ripple faced a major crisis with the US SEC, which claimed that XRP is a security sold without a license in the United States.

This case has lasted for many years and negatively affected XRP:

  • Institutions avoided investing in it.

  • I steered clear of trading platforms out of fear of any future rulings or penalties.

However, last year, the case ended in Ripple's favor after a full settlement, gradually restoring trust and opening the door for the return of institutions and platforms to invest in XRP.

The positive impetus behind the XRP ETF

The launch of the XRP ETF comes at a sensitive timing:

  • Institutions and large investors who steered clear of it due to the legal case now have the opportunity to enter officially and organized.

  • This means that institutional adoption of the currency may be in its early stages, especially since XRP has been absent from the scene for a long time.

The negative impetus behind the XRP ETF

Not negative in a direct sense, but it sets a ceiling for expectations:

  • Recently, under Trump’s administration, the American environment has become more supportive of cryptocurrencies, encouraging institutions and individuals to enter the market directly.

  • Also, XRP is listed on major global platforms, so it cannot be assumed that the trading volumes of ETF funds will suddenly exceed the trading volumes on these platforms.

For example, on the first day of the XRP ETF launch, trading volume reached $24 million.
This is considered a good number as a start, but when compared to Bitcoin funds that achieved billions of dollars in their early days, it is clear that there is still a long way to go for XRP funds to grow and reach truly impactful levels.
In the end, the launch of the XRP ETF is a positive step in the long term as it opens the door for institutional adoption and restores trust in the currency after its crisis with the SEC.
However, the impact will not be quick or massive like what happened with Bitcoin, but it may take time for its results to materialize.