Why Is XRP Price Falling After ETF Hype?

Why Is XRP Price Falling After ETF Hype?
The decline in XRP's price following the ETF launch reflects the complexity of market expectations and the combined impact of multiple factors. Below is an in-depth analysis from perspectives including market anticipation, product design, regulatory conditions, and market sentiment:

1. Leveraged ETF Characteristics Amplify Market Volatility

• Inherent Flaws of Leveraged ETFs
  The newly launched Teucrium 2x Long Daily XRP ETF (XXRP) is a 2x leveraged product designed to track XRP’s daily returns, not long-term trends. Such products require daily rebalancing of positions, forcing sell-offs during price declines and creating a "downward spiral effect." For example, if XRP drops 5% in a day, the ETF could lose nearly 10%, triggering further selling pressure.
• High Fees Discourage Long-Term Holding
  The ETF’s management fee of 1.85% is significantly higher than that of Bitcoin spot ETFs (average ~0.25%), increasing holding costs. Institutional investors may prefer short-term arbitrage over long-term allocation, exacerbating price volatility.
• Mismatch Between Leveraged Products and Market Expectations
  The market had anticipated spot ETFs (like Bitcoin ETFs), but the launch of a leveraged product was seen as a "suboptimal choice," failing to meet mainstream capital allocation demands. This led some investors to take profits, accelerating sell-offs.

2. "Buy the Rumor, Sell the News" Behavior

• Early Overpricing of Positive Catalysts
  Before the ETF approval, XRP had surged due to legal progress (e.g., partial victories in the SEC lawsuit) and ETF speculation. For instance, in January 2025, XRP briefly surpassed $3, up over 40% from late 2023. Post-launch, profit-taking caused a price correction.
• Caution Toward Leveraged ETFs
  Unlike Bitcoin and Ethereum ETFs, the XRP ETF debut involved high-risk leveraged products rather than direct spot exposure. This made institutional investors (e.g., pensions, insurers) hesitant, reducing demand below expectations.

3. Regulatory Uncertainty Suppresses Confidence

• Ongoing SEC Appeal Risks
  Although Ripple secured partial legal wins in 2023, the SEC filed an appeal in October 2024, potentially extending the case to late 2024. Regulatory ambiguity raised concerns about future ETF scrutiny or revocation.
• Persistent "Security" Classification Debate
  Even with ETF approval, the SEC could challenge XRP’s legal status anew. This uncertainty keeps traditional financial institutions cautious about allocations.

4. Broader Crypto Market Downturn Drags XRP Lower

• Bitcoin’s Plunge Triggers Chain Reaction
  On April 7, 2025, Bitcoin fell below $78,000, down over 6% intraday, dragging the entire crypto market lower. XRP, highly correlated with BTC (coefficient ~0.8), could not escape the sell-off.
• Shift Toward Risk-Off Sentiment
  The Crypto Fear & Greed Index dropped from "Greed" (61) to "Neutral" (43), reflecting reduced risk appetite. Leveraged XRP ETFs became easy targets for liquidation in this environment.

5. Divergence in Institutional Capital Flows

• ETF Inflows Fall Short of Predictions
  Despite Crypto.com’s CEO forecasting $8 billion in first-year inflows for XRP ETFs, actual data showed launch-day trading volume at just 30% of expectations. Institutions preferred OTC derivatives (e.g., CME futures) over costly leveraged ETFs.
• Whale Selling Intensifies Pressure
  On-chain data revealed that addresses holding over 1 million XRP sold ~140 million XRP (worth ~$380 million) in March 2025, likely linked to post-ETF volatility.

6. Technical and Structural Vulnerabilities

• Overbought Conditions Prompt Correction
  Before the ETF launch, XRP’s RSI (Relative Strength Index) exceeded 70, signaling overbought conditions. Technical retracement aligned with ETF-triggered selling.
• Liquidity Fragmentation
  XRP’s spot liquidity is concentrated on a few exchanges (e.g., Binance, Coinbase), while leveraged ETFs amplified derivatives market volatility. Widening spot-derivatives price gaps further discouraged buying.

Conclusion: Short-Term Adjustment Amid Multiple Pressures

XRP’s post-ETF price drop stems from intertwined factors like market expectations, product design, regulation, and macro trends. Long-term prospects could improve if SEC disputes resolve and spot ETFs emerge (e.g., 2026 price targets of $6–8). However, short-term risks from leveraged products and regulatory uncertainty remain. Key indicators to watch:

• Progress in SEC’s appeal
• CME XRP futures trading volume
• Spot ETF application updates

The current correction may offer entry points for long-term investors, but caution is advised due to leveraged product risks and unresolved regulatory challenges.