1 Key Reason Why XRP Lags Behind Ethereum and Other Top Cryptocurrencies

Key Points

• After hitting a 52-week high in mid-July, XRP is now down 20% over the past 30 days.

• SEC approval of new spot XRP ETFs has been pushed back to mid-October.

• The regulatory environment for Ripple (XRP) has seemingly taken a turn for the worse, despite a long-running SEC case being settled in August.

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After an impressive rally in July, when it hit a new 52-week high, XRP (CRYPTO: XRP) is once again struggling to regain momentum. Over the past 30 days, XRP is down a stunning 20%. By way of comparison, Ethereum (CRYPTO: ETH) is up 10% over that same time period.

Admittedly, August is often a rough month for cryptocurrencies, so maybe XRP's recent underperformance is nothing to be worried about. But what if it's the early warning signal of things to come? Let's take a closer look at what's behind XRP's recent weakness.

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The return of regulatory uncertainty

One key concern is the unexpected return of regulatory uncertainty. Earlier in the month, all of the regulatory issues swirling around XRP were supposed to be over. Ripple, the company that launched the XRP token, had just settled with the SEC on a long-standing securities case that dates all the way back to December 2020.

On the news, XRP was supposed to skyrocket in value. But that simply hasn't happened. In fact, quite the opposite. XRP is now one of the worst-performing major cryptocurrencies over the past 30 days, and it's not even close. Benchmark crypto Bitcoin (CRYPTO: BTC) is down 5% over the past 30 days, and Solana (CRYPTO: SOL) is down 7%. So XRP really stands out like a sore thumb with its double-digit losses.

Of particular concern is that the U.S. regulatory environment appears to be shifting against Ripple (XRP). For example, the SEC was tentatively scheduled to rule on several new spot XRP exchange-traded funds (ETFs) this month, but has now pushed that decision back to mid-October. Moreover, the legal team at Ripple recently chimed in on a forthcoming new digital asset market structure bill from Congress, hinting that it might damage the company's business prospects going forward.

Without regulatory clarity, a number of business initiatives from Ripple (XRP) might be at stake. Earlier in the summer, for example, Ripple applied for a U.S. banking license. That certainly requires regulatory approval. New tokenization initiatives (in which real-world financial assets are transformed into blockchain assets), too, will likely require regulatory approval once they reach a certain scale.

Should investors be worried about XRP?

The big issue to keep an eye on is the SEC approval of new spot XRP ETFs. Already, a handful of top investment firms have filed spot XRP ETF applications with the SEC. Earlier in the year, approval of these was supposed to be a slam dunk. In July, Bloomberg suggested that there was a 95% chance of them being approved this year.

Image source: Getty Images.

But, if you look at the numbers coming out of the online prediction markets, the odds are definitely starting to trend down. On Polymarket, for example, traders now give them a 78% chance of approval. That's still a very high percentage, so it's not time to panic quite yet.

Still, XRP is having a much harder time hitting $4 than most people expected. Both times it made a serious run at the $4 mark this year, something negative happened. In January, for example, XRP hit the $3.40 mark on Inauguration Day, and then sank in value as across-the-board tariffs were unveiled. Then, in July, XRP hit a 52-week high of $3.65. But things quickly fell apart after the market found out that a key Ripple insider sold off $175 million in XRP.

When will the regulatory uncertainty end?

If forced to pinpoint one key reason why XRP is now lagging behind other top cryptocurrencies, it would be the regulatory uncertainty that once again seems to be swirling around Ripple (XRP). That's strange, given that the 2020 SEC case against Ripple finally ended this month.

My prediction is that the spot XRP ETFs will eventually be approved later this year, and that this unexpected downturn in August will soon be a distant memory. But there might be quite a bit of price volatility between now and then, so keep your seat belt buckled if you plan to invest in XRP.

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Dominic Basulto has positions in Bitcoin, Ethereum, Solana, and XRP. The Motley Fool has positions in and recommends Bitcoin, Ethereum, Solana, and XRP. The Motley Fool has a disclosure policy.