If the principality is a sovereign country, like Liechtenstein or Monaco, there’s nothing stopping them from declaring themselves a kingdom. The reason they don’t is tradition.
If the principality is part of a larger nation, like Wales is part of the United Kingdom, upgrading it to a kingdom would require a constitutional change in the overlord country. Having a kingdom be part of a larger kingdom might seem strange, but a sovereign country can totally do that, and there’s also historical precedent for it.
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