Why is XRP down after a year of growth?

If you are a XRP (XRP) investor, the good news is that Ripple Labs (the company behind the XRP token) is finally starting to put its legal and regulatory issues in the rearview mirror. As a result, new opportunities for expansion in the US market are starting to open up, and XRP is heading into 2025 with new momentum and optimism.

The bad news, however, is that XRP’s market performance has not reflected this. In fact, XRP is down about 5% per year. It may not sound tragic, but a number of top cryptocurrencies, led by Bitcoinare up 50% or more for the year. So the obvious question becomes: Why does XRP continue to underperform the rest of the industry?

Legal and regulatory risk

The best answer is that Ripple may not be as free and clear of regulatory issues as people would like to believe. In August, a long-running lawsuit involving the Securities and Exchange Commission (SEC) finally ended, with Ripple agreeing to pay $125 million in penalties for improperly selling XRP tokens to institutional investors. In theory, that should have cleared any future legal or regulatory liability and allowed Ripple to return to business as usual.

But the SEC has until early October to appeal, and if it does, it could complicate matters. That could explain why the price of XRP didn’t rise more in August as many investors expected. Many believed that the price of XRP would double its price to $1, but so far this has not happened. Instead, investors are sitting on the sidelines, waiting to see what happens next.

Image source: Getty Images.

You can blame August’s crypto “flash crash” for some of XRP’s recent poor performance. However, other cryptocurrencies (including Bitcoin) already appear to be recovering as investors regain their appetite for risk assets. Instead, XRP is still down about 3% over the past 30 days.

Competitive landscape

The long-running process with the SEC that began in December 2020 has had a dramatic competitive impact. From 2020 to now, Ripple has lost partners and customers. It was forced to reduce its presence in the US market and focus instead on overseas markets. And he had to pay an estimated $200 million in legal fees to fight the SEC. All of this, in my opinion, weighed heavily on the company and the future prospects for XRP.

Moreover, when it comes to technological innovation, other blockchains may have simply passed XRP. I’m thinking specifically of Solanawhich overtook XRP in market cap to become the fifth largest cryptocurrency at the end of 2023. This year, Solana has grown by around 35%, further widening the gap.

Note: XRP was launched in 2012, before Ethereum revolutionized the smart contract concept in 2015. So, as Ripple executives recently admitted, there is still no smart contract functionality for the underlying XRP blockchain. Although you can process and record financial transactions using this blockchain, you cannot use it for more sophisticated transactions involving smart contracts. In a best-case scenario, Ripple executives say, smart contract functionality could emerge in 2025.

Or, take the example of stablecoins. XRP was launched at a time when stablecoins were nowhere near the big business they are today and before blockchains launched their own stablecoins. So while it’s fantastic that XRP is finally working on bringing a USD stablecoin to market, the fact remains that this new product really has a limited opportunity to take down the current titans of the $150 billion stablecoin market of dollars.

What’s next for XRP?

However, there is still much to look forward to for Ripple in 2025. It may finally be able to focus on its core business instead of being mired in legal and regulatory issues. It may look for new ways to expand into the US market. And it can continue to bring new products to market. All of this will surely increase the price of XRP.

And if you’re really optimistic, there’s a chance we’ll be talking about an exchange-traded fund (ETF) for XRP investors sometime in 2025. If that happens, it could be huge for XRP’s future price, given all the new money that could come in from retail and institutional investors.

Therefore, in the next 12 months, it is not out of the question that the price of XRP could double to $1. But it gets a little dangerous from there. A lot of things will have to go right, and Ripple will have to mend its relationship with the SEC, before this former crypto darling can really grow in value.