I had the same issue, and I fixed it through a pretty simple solution.
Extracting through an External Hard Drive is possible, but I didn't have one. I only had a 16GB pen drive.
My MacBook had only about 30 GB of space. I moved my Xcode file to the 16GB pen drive and I got more space to work. (Which is about 40 GB).
But here, there's another issue. I couldn't extract in the pen drive either.
The Archive Utility has the option to change the path, where it should be extracted. (In the Archive Utility Preferences) So I changed the path to Macbooks Downloads (Can place which ever location) and extracted from the 16GB Pendrive. It didn't show the not enough space warning this time, and worked perfectly.
![Screenshot 2022-04-10 at 12.30.45.png](https://developer.apple.com/forums/content/attachment/1132b7f1-a2b9-4187-a2d0-cc3178945eb4)
![Screenshot 2022-04-10 at 12.31.10.png](https://developer.apple.com/forums/content/attachment/ea69a0f3-839a-4629-9322-78d4f102b768)
Later I moved the extracted Xcode file to Applications folder.
Try this method, May worked for you too.