The cryptocurrency XRP (-2.77%) experienced a significant drop on Friday, declining by 6.8% as of 1:30 p.m. ET, with an intraday low of 7%. This downturn aligns with a broader market slump, where the S&P 500 and Nasdaq Composite fell by 1.9% and 2.6%, respectively.
Key Factors Driving XRP’s Decline
Inflation Data Surpasses Expectations
The U.S. Commerce Department reported that the core Personal Consumption Expenditures (PCE) price index rose by 0.4% in February—exceeding the projected 0.3% increase. This pushed the 12-month inflation rate to 2.8%, higher than the anticipated 2.7%, marking the steepest monthly rise since January 2024.
As the Federal Reserve’s preferred inflation metric, the PCE’s higher-than-expected numbers suggest a potential delay in interest rate cuts. Ellen Zentner, Chief Economic Strategist at Morgan Stanley Wealth Management, noted:
"The Fed’s 'wait-and-see' approach may extend further, given these figures."
Elevated interest rates typically discourage investment in high-risk assets like XRP, contributing to today’s price drop.
XRP’s Valuation Concerns
While XRP serves a practical purpose—facilitating cross-border payments and interbank settlements—its $125 billion market capitalization raises questions about overvaluation. Compared to speculative meme coins, XRP’s utility is undeniable, but its current price may not reflect sustainable fundamentals.
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FAQ
Why did XRP drop suddenly?
The decline was triggered by broader market downturns and stronger-than-expected inflation data, reducing investor appetite for riskier assets like cryptocurrencies.
How does the PCE report affect XRP?
Higher PCE inflation suggests prolonged high interest rates, dampening demand for volatile crypto investments.
Is XRP overvalued?
Despite its real-world use case, XRP’s $125B market cap may not align with its intrinsic value, prompting caution among analysts.
Final Thoughts
While XRP’s underlying technology offers tangible benefits, macroeconomic pressures and valuation disparities make it a speculative hold. Investors should monitor Fed policy shifts and market sentiment closely.