Most cryptocurrencies out there make you scratch your head and wonder, "what's the point of this?" But Ripple (XRP -3.28%) aims to be something of value in a sea of scammy and silly tokens.

Launched in 2012 by Opencoin (now called Ripple Labs), Ripple operates a blockchain ledger, with its native token XRP, that allows financial institutions to make fast and cheap cross-border transactions.

Despite its interesting ambitions, this payments-focused cryptocurrency is currently sitting 83% below its all-time high, even though it has soared 90% in 2023.

Should investors buy Ripple while it's down? Let's focus on some of the most important factors you should know.

Regulatory headaches

Most people understand fully that the financial services industry is probably the most complex and thorough from a regulatory perspective. This is why the advent of digital tokens has been so interesting. It has created somewhat of a regulatory gray area where no one knows for certain whether a particular cryptocurrency is a security or not.

In December 2020, the Securities and Exchange Commission (SEC) sued Ripple and its two executives for issuing an unregistered security with its Ripple tokens. Fast forward three years later, and the issue looks to be resolved. A court ruling in fact concluded that Ripple wasn't an unregistered security. And the SEC was rejected when trying to appeal this ruling.

It's difficult to say if this regulatory overhang is completely a thing of the past at this point. As is the case with any new technology, rules and laws are constantly evolving. There could be more headaches in the future.

Investors who are thinking of adding Ripple to their portfolios need to understand that this will always be a risk. This is especially true considering Ripple's strategy of trying to disrupt cross-border payments between financial institutions.

Competitive landscape

To its credit, Ripple has found success bringing on some banks to use its services. But I have never heard of these before. Sentbe, Banco Rendimento, and Induslnd Bank are all Ripple customers.

I wonder, though, if the major financial institutions -- like JPMorgan Chase or Bank of America, which are some of the largest in the world -- would ever use Ripple's network to handle these types of transactions. And I believe the answer is that they wouldn't.

Take JPMorgan. It's already been working on a Ripple competitor known as Onyx. This massive bank has existing relationships with millions of consumers and businesses, not to mention the influence it has in Washington D.C. It's not sitting by idly. If there's a real market need for a blockchain-based solution to help make international payments faster and cheaper, you can be sure that a company like JPMorgan is probably in the best position to benefit.

In the crypto space, Ripple has to worry about the likes of Solana, which is known to theoretically handle 50,000 transactions per second. And the second most valuable digital asset, Ethereum, is a leader when it comes to decentralized finance protocols. This just means that Ripple will have its work cut out for it as it tries to gain broader adoption.

Temper expectations

As things stand today, Ripple is the fifth most valuable cryptocurrency on the face of the planet, with a market cap of $35 billion. This standing is definitely admirable, and it shows that investors see some kind of potential over the long term.

But even though the token is down right now, I'm not a buyer at these levels.

Regulatory concerns are something that I worry about. Handling payments between banks and across borders means that Ripple will always be in the spotlight of legislators.

Plus, it's hard to envision a scenario where Ripple handles more volume than the largest banks out there, some of which are developing competing networks.

These two key risks can't be ignored.