Cryptocurrency XRP (XRP -0.25%) has gained lots of attention from investors lately, resulting in a 480% increase over the past year. Whenever any type of investment rises that quickly, it's worth evaluating to see if it's worth owning.
Unlike some cryptocurrencies, XRP (sometimes called Ripple) has real-world applications through its blockchain, which can act as a bridge currency in foreign transactions, saving both time and money compared to traditional financial transactions.
But XRP's rapid value increase calls into question whether the crypto is overvalued right now, and if it's being driven higher simply because of investor sentiment. While XRP isn't necessarily a meme coin, here are three reasons why it may be best not to buy it right now.
Image source: Getty Images.
1. It's very volatile
If you're interested in owning cryptocurrencies, then it's likely that you're OK with some volatility. Any type of investment will have price swings, of course, but cryptocurrencies are more prone to make big movements on little to no news.
While XRP isn't unique in its volatility, I think it's significant enough to dissuade some investors from owning it. Consider that back in February, XRP's value fell about 30% in just a five-week period. XRP regained its footing temporarily, but then fell 16% in just one week following the announcement of President Donald Trump's tariffs in early April.
Those are just two examples of XRP's tendency toward volatility, both occurring within weeks of each other. Of course, the coin's value has subsequently rallied again, but if you're not used to investment value shifts to this degree and they might cause you undue stress or prompt you to take action without thinking, then it's probably best to stay away.
2. It's fairly speculative
It's important to point out that some of the price movements XRP has experienced are tied to concrete reasons. For example, some of XRP's price gains over the past year have come from investors getting excited about crypto exchange-traded funds (ETFs) focused on XRP and the Trump administration taking a more open approach toward cryptocurrencies.
But while crypto ETFs can signal more legitimacy for digital coins and open them up to more investors, there's still a lot of speculating involved. Some analysts have estimated that XRP's price could surge to $25 because of the launch of the ETFs -- only to see the value then fall by 90%. While that's just a prediction, it's a good representation of how speculative the price of XRP can be.
What's more, XRP's value jumped more than 70% in the past month after the House of Representatives passed the Genius Act and the Digital Markets Clarity Act in the House, both of which clarify regulations for crypto and stablecoins. While it's good news for the industry, a 70% surge in XRP's price is likely unwarranted.
Huge value movements over a short period, whether for stocks or crypto, often signal that investors are pushing up an investment solely based on how they feel.
3. It's already richly valued
XRP's massive run lately means this crypto is priced for perfection. Its price already includes optimism around crypto deregulation, the launch of XRP ETFs, real-world usage of its blockchain, and a general optimism that's fueling a surge in crypto prices.
In short, XRP is already on a huge run based on a handful of tangible reasons, and any more gains from here are likely purely built on the whims of crypto investors. Unlike stocks, cryptocurrencies don't have cash flow or earnings to judge their value by, and based on XRP's 480% jump over the past year, it looks like the coin's price is now detached from the already speculative metrics used to judge crypto values.
Could XRP still go higher? Of course. Many cryptocurrencies have shown that they can continue to climb even without being tied to any concrete metrics. But there's no getting around the fact that buying XRP means you're paying a premium. And with optimism for XRP sky-high, any unmet expectations from the crypto could cause a substantial sell-off.
