Reasons XRP holders are experiencing the impact of Bitcoin’s liquidity shortage

The cryptocurrency market is presently undergoing its most intense liquidity stress test since late 2022, with over $1 trillion in value evaporated in the last month.

While the primary volatility is focused on Bitcoin, the structural damage is significantly affecting large-cap assets like XRP and Ethereum.

These simultaneous breakdowns are not isolated occurrences. They signify a coordinated liquidity shock that is compelling a reevaluation of risk throughout the digital asset landscape.

Bitcoin liquidity drain and ETF reversal

The market decline initiated as a gradual pricing adjustment but swiftly escalated into a liquidity event influenced by specific market segments.

Data from CheckOnChain indicates that traders realized $1 billion in losses on November 21 alone. This figure ranks among the most substantial loss realization days of the year.

Bitcoin Realized Losses (Source: Checkonchain)

The data reveals that the selling pressure was primarily driven by holders whose coins were less than three months old. These participants are statistically the most responsive to volatility and often enter the market near local peaks.

Consequently, they are typically the first to exit when price movements become unfavorable.

Further evidence from Glassnode supports this, showing that Bitcoin’s Short-Term Holder Profit/Loss Ratio has plummeted to levels last seen during the depths of the 2022 bear market. This metric indicates that the group of recent buyers is selling aggressively during periods of weakness.

Bitcoin Holders Short-Term Holders Profit and Loss Ratio (Source: Glassnode)

Indeed, this market behavior reflects the classic late-stage anxiety that typically characterizes significant downturns.

However, in contrast to the 2022 crash, which was triggered by credit contagion and exchange insolvency, the current capitulation is fueled by a depletion of marginal demand and a mechanical unwinding of leverage.

In fact, CryptoQuant data indicates that the current market is devoid of any notable whale activity.

Bitcoin Whale and Retail Activity (Source: CryptoQuant)

Moreover, this on-chain capitulation coincided with a sharp reversal in institutional flows.

US spot Bitcoin ETFs, which had briefly ended a five-day streak of redemptions with modest inflows earlier in the week, faced renewed selling pressure.

According to Coinperps data, these products experienced $903 million in outflows on November 20. This single-day figure is the largest of the month and ranks among the most significant since the products were launched in January 2024.

Bitcoin ETF Flows in November (Source: CoinPerps)

Additionally, the magnitude of these redemptions has negated the capital inflows from the previous relief rally.

Consequently, November is now on track to become the worst month on record for ETF redemptions. The cumulative total of $3.79 billion in outflows has already exceeded the record set in February.

This cumulative effect has led to a significant liquidity shock.

Bitcoin ETFs are currently down $3.98 billion from their peak in assets under management. This represents the second-largest drawdown in the brief history of these investment vehicles.

Bitcoin ETFs Drawdown From ATH (Source: CryptoQuant)

As these funds are compelled to sell underlying assets to fulfill redemption requests, they contribute additional sell-side pressure to a spot market that is already struggling to manage supply from anxious short-term holders.

XRP capitulation and profitability collapse

While Bitcoin is the catalyst for the volatility, XRP has emerged as an indicator for the secondary effects of the liquidity crisis.

XRP has historically diverged from Bitcoin during certain volatility periods, but in this case, its losses are closely mirroring those of the market leader.

As Bitcoin prices approach $80,000, XRP has fallen nearly 9% over the past 24 hours and dipped below $2 for the first time since April.

This accelerated a downtrend that had been developing on a fundamental level as liquidity exited the altcoin market.

According to Glassnode, the XRP Realized Loss at 30D-EMA (30-day exponential moving average) has surged to $75 million per day. This level of realized loss was last observed in April 2025.

XRP Realized Losses (Source: Glassnode)

This metric confirms that capitulation is no longer confined to Bitcoin tourist investors but has extended to holders of major altcoins. Investors are opting to lock in losses rather than endure the volatility. This indicates a loss of confidence in a near-term price recovery.

As a result, the capitulation has severely affected the profitability profile of the XRP network. On-chain data reveals that only 58.5% of the circulating XRP supply is in profit. This is the weakest reading since November 2024, a time when the token traded near $0.53.

Consequently, approximately 41.5% of all circulating XRP is experiencing an unrealized loss. This equates to around 26.5 billion tokens held by investors who are underwater on their positions.

This high percentage of supply in loss creates overhead resistance for any potential price recovery. As prices attempt to rebound, underwater holders often seek to exit their positions at break-even levels. This generates a continuous stream of selling pressure that limits upward momentum.

Notably, the current decline is occurring despite community enthusiasm regarding the recently launched XRP ETFs.

Thus, this data suggests that macro liquidity constraints and the pressure from the Bitcoin downturn are completely overshadowing any potential bullish narratives specific to the XRP ecosystem.

Structural weakness

The rapidity and severity of the losses in XRP can be attributed to structural differences between it and Bitcoin.

XRP lacks the deep institutional spot liquidity and the substantial bid from ETF inflows that can occasionally provide support to Bitcoin during periods of high volatility. The order books for XRP are generally thinner, making large sell flows more disruptive to price stability.

Furthermore, the asset has a more distributed retail holder base compared to the increasingly institutionalized Bitcoin market. Retail investors are typically more reactive to price fluctuations and more likely to panic sell during widespread market corrections.

Technical indicators reflect this structural weakness. The token recently formed a “death cross,” where the price fell below both the 50-day and 200-day moving averages.

This technical formation is widely regarded by traders as a signal of momentum exhaustion and often precedes periods of sustained selling pressure. It serves as a confirmation to algorithmic traders and technical analysts to adjust their positions for lower levels.

However, the primary driver remains the broader market dynamic.

When Bitcoin undergoes a liquidity event triggered by ETF outflows and short-term holder capitulation, altcoins act as shock absorbers for the system. They tend to amplify the volatility rather than mitigate it.

The liquidity in Bitcoin does not rotate into altcoins during these phases; instead, it exits the crypto economy entirely, settling into fiat or stablecoins. This leaves assets like XRP susceptible to secondary waves of panic selling.

The market outlook

A detrimental feedback loop characterizes the current market structure.

A decline in Bitcoin price triggers increased ETF outflows. These outflows necessitate spot selling by fund issuers, which drives prices lower. Lower prices incite panic among short-term holders, who sell into an illiquid market.

As market-wide liquidity diminishes, altcoins like XRP experience larger losses due to thinner order books. This deteriorating sentiment circles back to trigger further ETF redemptions.

This circular dynamic explains why losses in XRP are accelerating even in the absence of negative news specific to the asset. The drivers are systemic rather than isolated.

Market participants primarily focus on Bitcoin as the signal, but the realized loss spikes in XRP serve as an indication of deeper market fragility. This fragility is rooted in structural liquidity constraints and the composition of the current investor base.

Thus, Bitcoin’s stabilization will hinge on its capacity to absorb selling pressure from ETFs and restore confidence among short-term holders.

Until the feedback loop is disrupted by a reduction in outflows or a resurgence of spot demand, assets with weaker liquidity profiles will remain vulnerable to downside risk.

XRP serves as a crucial indicator in this environment. If its profitability metrics stabilize, it may suggest that the market has eliminated the majority of weak hands. However, if losses continue to accumulate, it implies that the liquidity crunch has yet to reach a bottom.

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