Down More Than 40% in the Past Year, Is XRP Overdue for a Rally?

There's been a broad sell-off in the crypto markets over the past year. Not only is Bitcoin down more than 35% during the past 12 months, but other, smaller cryptocurrencies are doing even worse. Dogecoin is down around 45%.

XRP (CRYPTO: XRP), one of the top digital currencies in the world with a market cap of $70 billion and long seen as a promising cryptocurrency that could revolutionize cross-border transactions, is also down big: 44% over the past 12 months. However, its valuation isn't as enormous as Bitcoin's (its market cap is around $1.3 trillion), and it has practical use cases, unlike meme coins. Could XRP be due for a rally this year?

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XRP's biggest problem may be growing competition

While XRP can settle transactions in seconds and can theoretically serve as a bridge currency in international money transfers, it may not be the best option for financial institutions. It has been highly volatile, and stablecoins can offer much greater consistency and reliability.

The lack of a catalyst or proof that XRP is growing significantly in popularity and is seen as a cryptocurrency of choice for large financial institutions makes it difficult to make the case that it'll be in high demand and won't simply be a speculative investment like other cryptocurrencies. XRP still has a lot to prove in that sense. But with a much lower valuation, investors who remain optimistic about its long-term opportunities may nonetheless be tempted to take a chance on XRP.

Is XRP likely to rally this year?

There could be a catalyst for XRP this year if the Clarity Act passes, which is a valuable piece of reform that would clearly define how digital assets should be treated and regulated. And it may lead to more investments in the crypto space. However, it's not a guarantee of passing, and it may only provide a short-lived boost, especially if interest rates rise this year, which could be far more detrimental to speculative investments such as cryptocurrencies.

XRP has been in a persistent decline this year, and it's down 15% in just the past month. It's a volatile investment, and there's little reason to expect that things will get better anytime soon. Even if you're optimistic about its long-term growth prospects, you may be better off waiting for proof that it can capitalize on them. With plenty of competition out there and significant risk, there's no rush to add this cryptocurrency to your portfolio, as it could still decline further in the weeks and months ahead.

David Jagielski, CPA has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Bitcoin and XRP. The Motley Fool has a disclosure policy.