After a painful down year in 2022, the cryptocurrency market is back in investors' good graces, as its valuation currently sits at $2.3 trillion (as of May 16). That's up considerably from about $800 billion at the start of 2023.

Even with the benefit of the bull run, Ripple (XRP -0.19%) hasn't gained much. The blockchain network's payments-focused digital token, XRP, has climbed just 17% in the past 12 months, seriously lagging the 140% gain of Bitcoin.

Is it time to buy XRP while it's still below $1? There are many factors to consider before coming to a conclusion.

Valuable use case

Ripple Labs, formerly known as OpenCoin, launched XRP as far back as 2012, so this is one of the earliest cryptocurrencies to hit the market. It's even older than Ethereum, which was introduced in 2015.

The purpose of this project was and still is to facilitate cross-border payments with a solution that's fast, cheap, and energy-efficient. Ripple works as a bridge currency that allows a sender of money to convert from their home currency to XRP and make the transfer. The receiver can then convert XRP into their home currency.

Ripple has already partnered with numerous banks and financial institutions in an effort to gain broader adoption. The market for this is truly huge, as $23.5 trillion was sent by corporations across borders in 2020, according to consulting firm Oliver Wyman. Even if XRP can be used for a tiny slice of this activity, demand for the token could soar, leading to higher prices.

What Ripple is trying to do, namely by trying to gain broad adoption with a real-world use case, stands in stark contrast to most of the cryptocurrency industry. Almost all of the thousands of tokens out there serve no purpose, and that helps XRP stand out.

Too much uncertainty

That's where the bullish case ends. A major red flag is Ripple's ongoing battle with the Securities and Exchange Commission (SEC). The latest ruling said that the sale of tokens to institutional buyers did violate laws, as XRP tokens can be viewed as securities that weren't registered properly. The SEC is seeking $2 billion in penalties and fines from Ripple.

It's never good when you're in the crosshairs of the most powerful financial regulator there is. Whether you're an expert in legal disputes like this, it's almost impossible to know how things will play out. This regulatory uncertainty could be the single reason XRP is down 18% in 2024 and sits 87% below its peak price.

I'd rather avoid this altogether. But if you are interested in adding XRP to your portfolio, then maybe it's better to wait until there are some clear answers from the SEC. Then at least there will be some clarity.

Additionally, I'm not too confident about Ripple's and XRP's ability to achieve much greater adoption over the long term. It's already been 12 years since its launch. What makes one think that its usage will suddenly skyrocket in the years ahead?

In other words, I think the total addressable market is significantly smaller than one would think, given the huge size of institutional cross-border payments activity. The global banks and financial firms out there aren't just going to sit idle and give up a big moneymaking service to a small blockchain network that still faces technical and legal risks.

This is an innovative cryptocurrency. But investors should temper expectations. There's a lot of risk with owning XRP, so it's best to avoid buying it, even though it is below $1.