ETF Demand Rises While XRP Faces Technical Challenges

Overview

• ETF demand is rising strongly, with Bitcoin ETFs and Crypto ETFs attracting large institutional inflows into crypto assets.

• XRP is gaining ETF-based interest, but technical and network challenges on the XRP Ledger are limiting upside momentum.

• Falling on-chain activity and node upgrade issues are creating short-term risks despite improving long-term demand trends.

Exchange-traded funds linked to crypto assets are seeing strong demand again. US spot Bitcoin ETFs recorded net inflows of more than $1.4 billion in a single week in January, showing that large investors are returning after a slow period at the end of last year. This rise in inflows suggests institutions are feeling more comfortable with regulated crypto exposure, especially through ETFs that trade on traditional stock exchanges.

The interest is not limited to crypto only. Equity and gold funds have also seen steady inflows as investors prepare for possible interest-rate cuts and ongoing global uncertainty. These broader trends are helping crypto ETFs as well, since many portfolio managers are adding digital assets as a small but growing part of diversified portfolios. ETFs make this easier by removing the need to directly hold or manage tokens.

XRP ETFs Attract Institutional Attention

Ripple’s altcoin has also benefited from this ETF trend. Newly launched spot XRP ETFs reported hundreds of millions of dollars in inflows during the first days of 2026. This is a notable shift, as altcoin products were slower to gain traction compared to Bitcoin ETFs in earlier periods.

The recent inflows point to renewed confidence among institutions looking for exposure to XRP without dealing with wallets or on-chain operations. On-chain data shows some accumulation happening alongside ETF demand. 

XRP balances on exchanges have dropped to multi-year lows, suggesting that supply is being moved into long-term holding structures such as ETFs and private wallets. In theory, this should support prices over time. However, price action has remained uneven, showing that capital inflows alone are not enough to solve deeper technical issues.

Also Read: XRP Rises 25% in 2026: ETF Investments Drive Growth

Technical Problems on the XRP Ledger

While demand through ETFs is rising, the XRP Ledger (XRPL) is facing technical challenges that are holding back growth. Several protocol updates and amendments were introduced. During this period, a large number of validators and servers continued running older software versions. Reports indicated that nearly half of the XRPL nodes were at risk of disconnection if they failed to upgrade.

This fragmentation creates short-term instability. When nodes are running different versions, maintaining consensus becomes harder. Wallet providers, exchanges, and payment services may experience delays or interruptions. Even if these issues are temporary, they can reduce confidence among developers and users who depend on smooth network performance.

Decline in Network Activity

Usage data from the XRP Ledger shows weaker activity compared to previous months. Decentralized exchange volumes on XRPL fell sharply from November to December 2025, and the number of active traders also declined during the same time. 

These figures suggest that real economic activity on the network has slowed, even as ETF inflows create positive headlines. This gap between financial demand and on-chain usage is important. 

ETF investors are mostly price-focused, while network activity depends on payments, trading, and applications. If DEX volumes and user activity stay low, the long-term growth story for XRP could remain under pressure, even with strong institutional interest.

Security and Upgrade Concerns

Past technical vulnerabilities have added to these concerns. A previously disclosed issue showed how a malformed transaction could cause multiple nodes to crash and restart. Fixes were released, but the episode highlighted how important fast and coordinated upgrades are for XRPL. The recent wave of amendments aims to improve accounting accuracy and token functionality, but the upgrade process itself created some operational stress.

These stresses may not last long, but they matter in the short term. When infrastructure looks fragile, traders often stay cautious. This helps explain why XRP price movements have been more muted than expected despite strong ETF flows.

Also Read: XRP vs Bitcoin: Rare Ichimoku Breakout Signals Potential XRP Rally

Market Structure and Volatility Risks

The current market structure adds another layer of complexity. With exchange-held XRP supply at multi-year lows, liquidity is thinner than before. This can support prices, but it also increases volatility. Large holders, often called whales, can move the market quickly with big transfers. In low-liquidity conditions, even moderate selling can push prices down fast.

Derivatives markets also play a role. At times, negative funding rates suggest traders are cautious or betting against short-term rallies. This creates a situation where good news from ETFs is balanced by technical selling pressure and weak on-chain signals.

A Mixed Outlook for XRP Price

The current situation shows a clear contrast. On one side, ETF demand is strong, with billions flowing into crypto ETFs and hundreds of millions into XRP products. On the other hand, XRPL faces software fragmentation, falling DEX volumes, and recent security concerns. For the asset to fully benefit from institutional demand, technical stability and network usage need to improve.

If node upgrades are completed smoothly and activity returns to the ledger, ETF inflows could have a stronger impact on price and adoption. If technical issues continue, XRP may remain stuck between strong financial demand and weak network fundamentals. 

This balance is expected to influence XRP performance in the months ahead, even if the broader ETF trend stays positive.

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FAQs

1. Why is ETF demand increasing in crypto markets?

ETF demand is rising as institutions prefer regulated products that offer easy exposure to crypto assets without managing wallets or private keys.

2. How are Bitcoin ETFs affecting the wider market?

Bitcoin ETFs are setting a benchmark for trust and liquidity, encouraging more investment into other crypto ETFs and related assets.

3. Is XRP benefiting from ETF inflows?

XRP is seeing new inflows through spot ETFs, but technical issues on its ledger are slowing the positive impact on price and usage.

4. What technical problems is XRP facing?

XRP Ledger has faced node upgrade delays, software version fragmentation, and a recent drop in decentralized exchange activity.

5. What should investors watch next for XRP?

Key factors include progress on network upgrades, recovery in on-chain activity, and whether ETF inflows continue at current levels.