Better Cryptocurrency to Buy Right Now: Bitcoin Vs. XRP

Bitcoin (BTC 0.27%) and XRP (XRP -2.75%) are two very different types of cryptocurrencies. Bitcoin, the world’s leading cryptocurrency, is often considered a “blue chip” currency that is less volatile than smaller altcoins. XRP, the native cryptocurrency of the Ripple payment platform, is a much smaller token that has traded largely on the drama surrounding a US Securities and Exchange Commission (SEC) lawsuit over the past four years.

Over the past 12 months, the price of Bitcoin has increased by 134% as the price of XRP has increased by 14%. Over the past five years, the price of Bitcoin has increased by 487%, while the price of XRP has increased by 116%. So is it smarter to just stick with Bitcoin than to bet on XRP’s future growth?

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Differences between Bitcoin and XRP

Bitcoin is often compared to physical metals such as gold because it is digitally mined through an energy-intensive proof-of-work (PoW) process. Its miners use powerful ASIC chips to process calculations and earn Bitcoin rewards from its blockchain.

This process becomes more difficult every four years, with scheduled “halvings” that cut the rewards for mining Bitcoin in half. At the time of writing, nearly 19.8 million Bitcoins (out of the maximum supply of 21 million) have already been mined. But due to the increasing difficulty of mining Bitcoin, experts do not expect the final Bitcoin to be mined until 2140. It is a strictly controlled long-term inflation policy.

The Bitcoin blockchain does not support smart contracts or decentralized applications (dApps), such as the proof-of-stake (PoS) blockchains used by Ethereum, Solanaand Cardano. However, its simple approach to mining, scarcity, and its growing adoption for mainstream payments make it more comparable to gold, silver, and other precious metals than many other cryptocurrencies.

XRP is a token that was digital beaten instead of mined. Its parent company, Ripple, minted its entire supply of 100 billion tokens before its market debut and initially locked 55 million of those tokens in escrow accounts across its blockchain. It releases some of these tokens periodically to stabilize its liquidity and supply. It doesn’t make new tokens, it just distributes a fixed supply.

Ripple is promoting its payment processing blockchain and closely related RippleNet service as an alternative to the international payment protocol SWIFT (Society for Worldwide Interbank Financial Telecommunication) used by most banks. It says its blockchain can process real-time gross payments, remittance transfers and foreign exchange transactions at a faster pace with much lower fees.

Ripple promoted XRP as a native cryptocurrency, but many financial institutions simply used the blockchain to make traditional fiat currency payments. Ripple launched an initial coin offering (ICO) for XRP in 2013 to garner a little more attention, but the SEC sued Ripple over this offering in 2020 and accused it of selling unregistered securities.

What are the short-term tailwinds and headwinds?

Bitcoin has benefited from two tailwinds this year. First, the SEC approved the first 11 Bitcoin spot-price exchange-traded funds (ETFs) in January. These ETFs allowed investors to gain direct exposure to Bitcoin through their brokerage accounts without trading on a cryptocurrency exchange. Second, the last Bitcoin halving in April made it even more difficult to mine new coins.

The price of XRP surged earlier this month after Ripple finally settled its SEC lawsuit. Ripple was fined just $125 million, compared to the SEC’s initial demand of $2 billion. A federal district court ruled that its ICO did not constitute a sale of unregistered securities. This settlement removes the biggest near-term headwind for XRP.

Ripple plans to launch its own stablecoin (Ripple USD) and $10 million in tokenized US Treasuries on the XRP blockchain this year. It is also preparing to update that registry with new tools for the development of decentralized financial applications (DeFi) and dynamic non-fungible tokens (NFTs), and those new projects could stabilize and increase the market price of XRP.

Expectations of rate cuts in the near future are leading some investors to turn to the cryptocurrency market. If interest rates fall over the next few quarters, Bitcoin and XRP could stabilize and rise.

So which cryptocurrency is a better buy?

With a market capitalization of $1.2 trillion, Bitcoin represents more than half of the combined valuation of the entire crypto market of $2.1 trillion. XRP is only worth $34 billion. I believe Bitcoin’s higher value, shrinking supply, and growing adoption among institutional investors, businesses, and governments make it a viable alternative to gold.

I can’t say the same for XRP, which is still loosely tied to Ripple’s main payment platform and not widely accepted for mainstream payments. Also, XRP cannot be used to develop as many dApps or crypto assets as Ethereum and other PoS blockchains. So right now, I think Bitcoin will continue to outperform XRP for the foreseeable future.