The Growing Interest in Spot XRP ETFs: An Analysis of 21Shares’ Recent Move

The Growing Interest in Spot XRP ETFs: An Analysis of 21Shares’ Recent Move

The landscape of cryptocurrency investments is continuously evolving, and one notable trend is the increasing interest in exchange-traded funds (ETFs) based on cryptocurrencies. Among the firms leading this charge is 21Shares, an asset management company that has recently submitted an application to the US Securities and Exchange Commission (SEC) for a spot XRP ETF. This application, filed on November 1, marks a significant milestone in the ongoing attempts to introduce a spot XRP investment vehicle, especially against the backdrop of ongoing regulatory scrutiny over the digital asset market.

In a strategic move, 21Shares has chosen Coinbase—as the largest cryptocurrency exchange in the US—as the custodian for its newly proposed Core XRP Trust. This choice not only adds a layer of credibility to the initiative but also facilitates easier access for investors. By utilizing Coinbase, 21Shares ensures that the fund is managed by a trusted institution, which could potentially alleviate some investor concerns regarding the security and reliability of cryptocurrency investments.

Learning from Previous Successes

21Shares has laid a solid foundation with its previous ETF ventures, particularly in Bitcoin and Ethereum. Its Bitcoin ETF, known as ARKB, gained substantial traction, boasting $2.6 billion in net inflows, while its Ethereum counterpart has attracted $21.8 million since their respective launches. These successes underscore the company’s experience and capability in managing cryptocurrency ETFs, highlighting its commitment to expanding investment opportunities in the digital asset space.

The proposed Core XRP Trust is designed as a passive investment vehicle, aiming to track the price of XRP without engaging in speculative trading. Its strategy involves mirroring the performance of the CME CF Ripple-Dollar Reference Rate, while avoiding the use of leverage or derivatives. This conservative approach may appeal to risk-averse investors looking for exposure to XRP without the complexities associated with direct purchases or transfers of digital currencies.

Regulatory Hurdles Still Looming

Despite the enthusiasm surrounding this move, the approval of the XRP ETF is not guaranteed. The SEC has yet to sanction any spot XRP ETFs, primarily due to an ongoing legal Schism with Ripple Labs, the issuer of XRP. The SEC’s claims dating back to 2020 allege that Ripple conducted unregistered sales, raising $1.3 billion improperly. Although a pivotal 2023 ruling suggested that XRP should not be classified as a security when traded on exchanges, the case continues to unfold, and the regulatory environment remains in flux.

Ripple CEO Brad Garlinghouse has voiced optimism regarding potential SEC approval for an XRP ETF, suggesting that recent approvals for Bitcoin and Ethereum ETFs indicate a shift in regulatory posturing. Moreover, 21Shares is not alone in exploring this avenue; the interest from other asset managers such as Canary Capital and Bitwise implies a broader institutional appetite for XRP investment despite the lingering uncertainties associated with its regulatory status.

While the road ahead for a spot XRP ETF is fraught with challenges, the persistent interest from asset management firms speaks volumes about the growing acceptance and potential of cryptocurrencies in the traditional financial landscape. Investors and firms alike are keenly watching this space as developments unfold.

Regulation

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