XRP (Ripple) Just Fell Below $3. Buy the Dip, or Run for the Hills?

Key Points

• After showing signs of a potential breakout, XRP has once again fallen below the $3 mark.

• While a buy-the-dip strategy might work for Bitcoin, it's much less likely to work for XRP.

• XRP is still in search of new catalysts to propel it to a new all-time high of $4.

• 10 stocks we like better than XRP ›

In September, XRP's (CRYPTO: XRP) dropped below the $3 price level again. That triggered all kinds of warning signals, given just how volatile and unpredictable XRP has been this year.

While XRP is up more than 370% during the past 12 months, it hasn't been a nice, smooth ride. At one point this summer, XRP was in danger of dropping below $2.

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Thus, XRP investors now face an interesting dilemma heading into the final quarter of the year. Should they buy the dip, or should they search out better alternatives?

Image source: Getty Images.

The buy-the-dip strategy

Buying the dip is one of the most misunderstood investment strategies in crypto. Too many people interpret this to mean that you should buy a cryptocurrency any time it falls in price by 10% or more.

This strategy might make sense if the long-term trajectory of a cryptocurrency is only up. This upward trajectory implies that the cryptocurrency eventually recovers after any momentary dip, and marches higher. By buying the dip, you are essentially getting a discount on your favorite cryptocurrency.

That's why a buy-the-dip strategy makes sense for, say, Bitcoin (CRYPTO: BTC). If you look at a five-year chart for Bitcoin, you can clearly see the upward trajectory. Yes, there have been temporary pullbacks, some of them huge, but the price just keeps marching higher. Therefore, buying the dip is a smart strategy for Bitcoin.

But it's a different story entirely for XRP. Take a quick look at a five-year chart for XRP. There have been long stretches of time when XRP does absolutely nothing. It meanders around a certain price point for months at a time, with no clear sign of direction. Every now and then, XRP goes completely bonkers, but other than that, nothing much seems to happen.

And, unfortunately, that has been the case with XRP this year. As soon as it skyrocketed from a price of $0.50 in November to a price of $3.40 in January, XRP seemingly stalled out at this higher price level. For much of the year, XRP has traded in a range between $2 and $3.50. The market can't seem to make up its mind what the true price of XRP should be, with some investors expecting the price of XRP to crash at any moment.

What is priced into XRP right now?

The task facing investors is figuring out which catalysts are actually priced into XRP right now. From my perspective, a few of the big catalysts that were supposed to power XRP higher this year have already been priced in.

For example, take the pending Securities and Exchange Commission (SEC) approval of new spot XRP exchange-traded funds (ETFs). These have been talked about since January. Everyone anticipates they're arrival. It's really just a matter of when, not if, the SEC approves them. So it's fair to say that the probable launch of these ETFs has already been priced in.

The same is true for the newfound regulatory clarity around Ripple, the company behind the XRP token. The long-running lawsuit involving the SEC finally settled in August, but still nothing much happened with the price of XRP. But wasn't XRP (Ripple) supposed to go parabolic after a big win? That leads me to think that any good news on the regulatory front has already been priced in as well.

So that's my primary concern with XRP right now: the lack of clear catalysts to push it higher in 2025. The two really strong catalysts -- regulatory clarity and new spot ETFs -- have likely already been accounted for by investors. And that leaves crypto investors waiting on interest rate cuts from the Federal Reserve as some kind of magical elixir to push XRP higher.

What is the maximum upside for XRP?

Based on the above, the maximum upside for XRP right now probably is $4. That might not sound impressive, but it would be a new all-time high for XRP, which has never traded higher than $3.84 in more than 13 years of existence.

Would you be happy with 33% returns on a very risky, highly speculative digital asset? If so, you might consider buying the dip. But, as for me, I'd much rather buy the dip on Bitcoin. That's a time-tested strategy that has paid off big for investors for more than a decade.

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Dominic Basulto has positions in Bitcoin and XRP. The Motley Fool has positions in and recommends Bitcoin and XRP. The Motley Fool has a disclosure policy.