In 2012, a start-up called Opencoin launched the Ripple payment-protocol network for handling real-time gross payment settlements, currency exchanges, and remittance payments for financial institutions. It boldly claimed Ripple could enable "secure, instantly, and nearly free global financial transactions of any size with no chargebacks."

Ripple routed those transactions through its blockchain-based ledger, which also hosted a native cryptocurrency called XRP (XRP -1.79%). Opencoin rebranded itself as Ripple Labs in 2015, and the market's interest in XRP subsequently skyrocketed as Bitcoin and Ether lit a fire under the broader crypto market.

A digital illustration of a "chain" of data.

Image source: Getty Images.

On Jan. 4, 2018, XRP's price hit its all-time high of $3.84. That marked a stunning gain of nearly 40,000% over the previous 12 months. But since hitting that peak, the price has declined 75% to $0.62. Should daring investors buy the cryptocurrency while the bulls are still looking the other way?

Why did XRP lose three-quarters of its value?

Three major headwinds are holding XRP back right now: high interest rates, regulatory challenges, and competition from similar payment protocols and cryptocurrencies.

Rising interest rates drove investors to abandon cryptocurrencies, meme stocks, and other speculative investments in favor of more conservative investments over the past two years. That slowdown heralded the beginning of a new "crypto winter," which chilled the world's leading cryptocurrencies and most crypto-related stocks.

As the crypto winter dragged on, government regulators started to tighten their grip on the freewheeling cryptocurrency sector. In December 2020, the Securities and Exchange Commission (SEC) sued Ripple Labs and two of its executives for raising $1.3 billion through an unauthorized offering of XRP tokens. The SEC argued that those XRP tokens should have been classified as unregistered securities.

Ripple seems to be winning the case so far. This July, U.S. District Judge Analisa Torres ruled that Ripple's sales of XRP tokens didn't constitute a sale of unregistered securities and had more in common with a foreign currency transaction. Torres rejected a request by the SEC to appeal that ruling in October, and the SEC subsequently dropped its initial claims against Ripple's two executives. However, the lack of a clear resolution continues to depress XRP's price in this choppy market.

Ripple was an innovative payment protocol a decade ago, but it now faces intense competition from similar blockchain-driven platforms like Ethereum and Solana. Ethereum serves a broader range of markets than Ripple, which mainly serves financial institutions, while Solana processes transactions at a much faster rate than Ripple. If Ethereum and Solana box Ripple into a corner, XRP could lose its luster and be left behind when the crypto winter finally ends.

Is it the right time to buy XRP?

Ripple's greatest strength is that a growing number of financial institutions like Travelex Bank, Tranglo, and Sentbe already use its payment processing protocol. So if the crypto market recovers and the mainstream demand for cryptocurrencies rises again, those institutions are likely to promote more XRP transactions.

That stabilization could then drive more people to adopt XRP (which is currently the world's sixth largest cryptocurrency) as a mainstream digital currency for payments. Institutional investors would also finally warm up to XRP and buy it alongside Bitcoin and Ether.

But investors shouldn't put too much faith in analysts' price predictions for XRP. For example, Thomas Kralow, a crypto hedge fund manager, previously claimed XRP could hit $30 this year. But that forecast seems absurd because it would give XRP a market cap of $3 trillion, more than double the current market cap of all of the world's cryptocurrencies combined.

So instead of getting distracted by those forecasts, investors should see if XRP can climb back above $1 -- which has been a historically important level for Bitcoin and Ether -- to see if it can revisit its all-time highs. With interest rates stabilizing and the SEC case nearing a resolution, I believe its downside potential should be limited.

XRP will still be repeatedly compared to Ether, Solana, and other similar tokens, but it might be the right time for bold investors to pull the trigger.