What happens to the gravitational potential energy of a contracting interstellar cloud?

It changes from one form of energy into another

Explanation:

A solar nebula collapses because of the high compression as well as due to the gravitational force of attraction. Due to this collapse of the solar nebula, its temperature eventually rises. This results in the shrinkage of the clouds where the energy gradually changes from the gravitational potential energy (P.E) to kinetic energy (K.E). As these gaseous and dust particles acquire the K.E, it starts colliding with one another rapidly and again transforms the energy from K.E to thermal energy.

yes time is real because though everything is relative to gravity they mean material things while time isn't a material thing making it different from gravity and leaving it as its own entity.