Why XRP (Ripple) Is Sinking Today

Since yesterday afternoon, the price of XRP (CRYPTO: XRP) traded roughly 8.5% lower, as of 3 p.m. ET. The fall is part of a broader decline in the crypto sector, which has now entered bear market territory.

Risk-off sentiment is hitting crypto hard

Questions about artificial intelligence valuations and the Federal Reserve's trajectory regarding interest rate cuts are hitting the crypto market harder than the broader stock market. That's not entirely surprising, given the inherent volatility of crypto. The price of Bitcoin, the world's largest cryptocurrency and often viewed as a bellwether for the sector, has fallen from over $124,000 per token in early October to below $90,000, as of this writing, reflecting a nearly 29% drop.

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Now, the crypto market has survived many sell-offs in its short life span, but the sell-off in recent months is the worst 50-plus-day correction since March 2017, according to the crypto research firm K33. Naturally, that's going to take most of the sector with it, including XRP.

Part of the sell-off could be attributed to wild swings in expectations for a Fed rate cut in December. Just one month ago, traders betting on changes to the federal funds rate saw a nearly 94% chance of another rate cut at the Fed's final meeting of the year, according to the CME Group. As of this writing, the odds have fallen below 32%. Crypto tends to perform better in a falling rate environment.

Volatility goes hand in hand with crypto

Unfortunately, extreme volatility is a common feature of investing in cryptocurrencies. However, I don't think crypto is at any risk of going away, so long-term investors should stay the course. I personally prefer to invest in larger tokens, such as Bitcoin.

XRP has immense potential due to its robust technical network, its ability to facilitate international payments, and its role within Ripple's ecosystem. Ripple is the company behind XRP. The token is likely to remain volatile for the foreseeable future, so I'd keep positions smaller and more speculative for now.

Bram Berkowitz has positions in Bitcoin and XRP. The Motley Fool has positions in and recommends Bitcoin and XRP. The Motley Fool recommends CME Group. The Motley Fool has a disclosure policy.