The cryptocurrency saw a steep 24.6% decline following the influx of new tokens, sparking concerns over market stability and liquidity.

Ripple’s Escrow Release and Market Impact

On February 3, Ripple unlocked 1 billion XRP from two escrow accounts, ‘Ripple (26)’ and ‘Ripple (27)’. The release occurred in two transactions—one for 400 million XRP and another for 100 million XRP. This event was notable as these accounts had not previously been used for escrow unlocks.

Ripple unlocked another 1 billion XRP, shaking out weak-handed investors and temporarily driving the price down. Source: MrPhantomX via X

Although Ripple releases 1 billion XRP each month, not all tokens enter circulation immediately. It generally sells 20%-25% of the released amount and returns the rest to escrow for supply management and liquidity. However, this month’s release was so big that it created high market volatility, and traders reacted to the sudden increase in available tokens.

XRP’s Price Dropped Over 24%

The influx of new XRP into the market triggered a sell-off, driving the price down by more than 24.6% within a day. Investors responded to fears of increased supply, which often leads to downward price pressure. This reaction is consistent with past unlock events, where temporary price dips followed large token releases.

The massive drop in XRP price sparked concerns among market experts. Source: Austin Hilton via X

Market analysts suggest that the bearish sentiment surrounding XRP is partly due to broader crypto market volatility and ongoing regulatory concerns. A trader noted, “XRP’s price action is closely tied to Ripple’s escrow system. When large amounts are released, investors often anticipate a drop and react accordingly.”

Ripple’s Escrow System and Market Stability

The escrow system, established by Ripple back in 2017, was meant to avoid abrupt market shocks by controlling the amount of XRP in circulation. At the time of implementation, 80 billion XRP were put into escrow, scheduled to release 1 billion every month to ensure a steady and predictable supply.

Despite this, XRP has faced selling pressure subsequent to the escrow releases due to investor fears of oversupply. The official company continues to project a long-term approach, holding a good chunk of the released XRP and targeting strategic token distribution to institutions and partnerships.

XRP’s Future: Bearish or Bullish?

The sharp decline in XRP’s price raises questions about its short-term trajectory. Some analysts predict further bearish movement if XRP fails to hold key support levels. Technical indicators suggest that a break below $1.88 could lead to further declines, with the next support level around $1.34.

Ripple’s XRP was trading at $2.61, up 8.3% in the last 24 hours as of press time. Source: XRP Liquid Index (XRPLX) via Brave New Coin

On the contrary, XRP may remain in a bullish reversal above the $2.50 mark. Market recovery, institutional adoption, and the development of Ripple’s ongoing case with the SEC may help recover investors’ confidence.

Speculation on XRP’s Role in a US Crypto Reserve

Beyond the immediate price action, there’s been discussion of XRP’s potential to be part of a US crypto reserve. Supporters say XRP’s speed, low transaction fees, and already integrated banking structure make it an ideal candidate to underpin financial infrastructure. As an American company, Ripple and XRP are well placed for a U.S. digital asset stockpile.

XRP remains a strong candidate for a strategic reserve in the US. Source: Versan via X

Yet, regulatory uncertainty and misgivings over the influence of Ripple on XRP remain big impediments. As much as XRP efficiency in cross-border settlement is acknowledged, its place within a national reserve would be better assured when much more regulatory clarity and wide acceptance among policymakers are obtained.

Watch – XRP Technical Analysis Final Thoughts

Ripple’s 1 billion XRP release has once again demonstrated the market’s sensitivity to supply dynamics. While the escrow system provides a level of predictability, the immediate impact on price remains a recurring concern for investors. As XRP navigates this volatility, its long-term prospects will depend on market sentiment, regulatory clarity, and broader adoption within the financial sector.