XRP’s Supply Squeeze: A Catalyst for Price Momentum

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As 2026 begins, XRP is exhibiting a powerful fundamental signal that is capturing market attention. The digital asset is testing the psychologically significant $2.00 level, supported by a notable shift in on-chain dynamics. A rapid depletion of readily available tokens on exchanges is occurring simultaneously with substantial institutional accumulation via ETFs, creating a pronounced tightening of supply against demand.

Beyond pure market mechanics, regulatory progress is fueling positive sentiment. Japan has implemented a major reduction in its cryptocurrency tax rate, slashing it from 55% to 20%. The country has also approved its first domestic XRP-focused ETF, a move that has significantly boosted trading activity during Asian market hours. Meanwhile, market participants are looking ahead to January 15th, when pivotal discussions on the US Market Structure Bill are scheduled to take place.

Technological adoption continues to advance as well. The integration of JPMorgan's GTreasury initiative into the XRP Ledger is viewed as a critical development for embedding the blockchain more deeply within traditional financial infrastructure.

A Historic Drawdown in Exchange Reserves

The primary force behind the current price strength is a sharp contraction in liquid supply. According to Glassnode metrics, the volume of XRP held on centralized exchanges has plummeted to an eight-year low of just 1.6 billion tokens as of January 2nd. This figure represents a dramatic 57% decline from the 3.76 billion tokens recorded as recently as October 2025. This exodus from trading platforms into long-term custody indicates a reduction in immediate selling pressure, as investors shift their holdings toward storage solutions.

ETF Inflows Overwhelm New Supply

This supply crunch is being driven predominantly by substantial demand from US spot ETFs, which launched in November 2025. Over the past two months, these investment vehicles have absorbed approximately 750 million XRP, corresponding to net inflows exceeding $1.16 billion.

This institutional buying is now outpacing the natural rate of new supply. While Ripple did release one billion XRP from its escrow accounts at the start of the month as part of its scheduled program, 700 million of those tokens were immediately returned to lockup. The effective net addition of 300 million tokens to the circulating supply is being aggressively offset by ongoing ETF purchases. US-based ETFs are now estimated to hold about 1.1% of XRP's total circulating supply.

Price Trajectory and Market Outlook

XRP is currently trading at $1.99, hovering near its daily peak. Market experts, including analysts at Standard Chartered, project that the asset could reach $8.00 by the end of 2026, provided ETF inflows persist. In the near term, traders are closely watching to see if a decisive breakout above the $2.05 resistance level can be achieved. Given the historically low exchange balances and rising funding rates, the first quarter of 2026 is likely to be defined by the ongoing tension between constrained supply and robust institutional demand.