Key Points
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The Bitwise XRP ETF and some of its peers are on extended asset-gathering streaks.
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That may be a constructive sign for believers in this cryptocurrency.
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However, XRP pulled back in recent days.
By market capitalization, XRP(CRYPTO: XRP) is the fifth-largest cryptocurrency. That prominence is reflected in the world of exchange-traded funds (ETFs), where a dozen products are dedicated to the asset once loosely known as “Ripple.”
Not all XRP ETFs are large, but only six have more than $100 million in assets under management (AUM). Home to $520 million in assets, the Bitwise XRP ETF(NYSEMKT: XRP), which clearly has a strong ticker game, is the king of the XRP ETF category.
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In the last three months, the XRP ETF hauled in $127 million in fresh assets, or more than a quarter of overall AUM. But inflows alone don’t necessarily make XRP and the corresponding ETFs “buys” at the moment.
An examination of XRP
It’s a fact that XRP ETFs are on an eight-week run of asset growth. It’s also a fact that when buyers enter the market and invest in funds such as the Bitwise XRP ETF, it’s advantageous on multiple fronts.
First, when an investor invests in the Bitwise fund or another comparable ETF, the fund manager enters the market to buy XRP. That reduces the available supply of the digital asset, potentially stoking upside. Second, demand for XRP ETFs can help stabilize the market.
All that sounds good, and it is, but it doesn’t change the fact that the cryptocurrency has fallen 5% in the last week. That downside was attributed in part to uncooperative inflation data and the rising probability that the Federal Reserve will raise interest rates next week.
One way to look at that scenario is that, in the near term, XRP ETFs may be more driven by macroeconomic factors than by inflows. If the Fed proceeds with rate hikes or signals a hawkish stance in the months ahead, that’d likely weigh on this cryptocurrency’s performance.
More XRP considerations
This isn’t a condemnation of XRP or the Bitwise ETF, but there’s another factor that could weigh on this digital currency in the near term. As one of my Foolish colleagues recently noted, Sept. 15 is the “do or die” date for the Clarity Act. If that legislation doesn’t pass, XRP could experience downside because it’s already proven vulnerable to negative headlines about that bill.
Yes, the ETF inflows indicate institutional interest in XRP, but on that front, XRP is still dwarfed by Bitcoin and other digital assets.
Combine the cryptocurrency’s history of not consistently being responsive to what should’ve been positive catalysts with the headwinds of a Fed rate hike and the Clarity Act possibly not getting to the finish line, and it’s likely best to stay away from XRP over the near term.
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Todd Shriber has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Bitcoin and XRP. The Motley Fool has a disclosure policy.