Down 40% in the Past 12 Months, Is XRP a Good Buy Right Now?

As one of the leading cryptocurrencies in the world, XRP (CRYPTO: XRP) is often seen as a promising long-term investment, given its potential to revolutionize global finance and reduce fees. Its market cap of $116 billion still looks fairly modest in relation to Bitcoin, which is at nearly $1.8 trillion.

In the past 12 months, both of these cryptocurrencies have been struggling. Bitcoin has fallen by 17%, and XRP is down by more than 40% (returns as of Jan. 26). With XRP's price recently falling more sharply and recently dipping below the $2 mark, could now be an opportune time to add this cryptocurrency to your portfolio?

Image source: Getty Images.

The long-term investing thesis for XRP

XRP can help reduce friction in global transactions by acting as a bridge currency and helping to reduce the time it takes for transactions to settle while also bringing fees down in the process, with an average cost of just $0.0002 per transaction.

That, in turn, can lead to more people using XRP and expanding its reach and popularity in the financial markets. It's that hope and expectation that led the coin to reach highs of more than $3.65 within the past year. If it simply got back to those levels, XRP would be up around 90% from where it is today. In the longer view, there may be much more upside.

Worsening economic conditions and rising competition are the biggest threats to XRP

As promising as the future may appear to be for XRP, the problem is that economic conditions aren't ideal right now. If there's a slowdown in world economies, the demand for global payments may not be all that strong. That can limit the potential demand for XRP, at least in the short term.

Meanwhile, in the longer term, there's the danger that other coins or crypto assets may be more preferred options for financial institutions. XRP's volatility is a concern, and banks may choose to use stablecoins instead or use their own digital currencies. Fundamentally, these can be more concerning problems for XRP in the long run.

Unfortunately, there's no huge catalyst out there for investors to count on, and that may boost XRP's value. This could be a slow-and-uncertain path forward. Ultimately, XRP is a highly volatile asset to hold, and unless you have a high risk tolerance and are willing to accept the uncertainty that comes with it, you may still prefer to avoid XRP, as there's no guarantee that its value will recover this year.

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.