Why Did XRP Sink Today?

Key Points

• XRP is sliding alongside a broader crypto sell-off.

• The Federal Reserve's 0.25% rate cut last week was smaller than many investors had hoped.

• 10 stocks we like better than XRP ›

XRP (CRYPTO: XRP) fell on Thursday, down 6.8% as of 4:59 p.m. ET, as measured from 4 p.m. on Wednesday. The move comes as the S&P 500 (SNPINDEX: ^GSPC) and Nasdaq Composite (NASDAQINDEX: ^IXIC) both lost 0.5% on the day.

The banking-focused crypto is falling along with much of the market as investors await Friday's personal consumption expenditure (PCE) data.

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PCE inflation in focus for crypto investors

Many investors were hoping the Federal Reserve would cut rates by more than the 0.25% announced last week. That led to the forced liquidation of many leveraged positions that traders had taken ahead of the rate cut announcement. Lower interest rates typically reduce returns on safe assets, such as bonds, making riskier investments, like XRP, more attractive to investors.

Investors are now anxiously awaiting Friday's PCE data -- the inflation measure that has traditionally carried the most weight with the Fed -- which will shed light on the central bank's next policy moves.

Image source: Getty Images.

Bank adoption doesn't necessarily mean XRP will rise in price

In a world of meme coins, XRP's practical utility in streamlining payments and settlements between financial institutions stands out. However, I believe inventors often misunderstand some fundamental dynamics in how XRP is used -- or rather, not used -- by many of the institutions that utilize its blockchain.

I think the technology offered by its creator, Ripple, will continue to disrupt the banking industry; however, this does not necessarily mean XRP will rise in value. Its $166 billion market capitalization is inflated, and in my view, XRP is overvalued. Bitcoin and Ethereum are much smarter plays.

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Johnny Rice has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Bitcoin, Ethereum, and XRP. The Motley Fool has a disclosure policy.