Consider Swapping Bitcoin for XRP: Is It a Wise Choice?
Consider Swapping Bitcoin for XRP: Is It a Wise Choice?
Bitcoin's (BTC 1.96%) price has surged by double its value within the last 12 months. Various factors contributed to this climb: The approval of the initial Bitcoin spot price exchange-traded funds (ETFs) in January, its halving in April which reduced mining rewards by half, the Federal Reserve's long-awaited interest rate cut in September, and its recognition as a legitimate currency in countries such as El Salvador and the Central African Republic.
Bitcoin's recovery might persuade numerous investors that it offers stability as a long-term investment like gold or silver. It boasts a market cap of $1.4 trillion - compared to gold's $18.6 trillion and silver's $1.9 trillion - and now stands as the world's 10th most valuable asset.
However, as Bitcoin advances, it may potentially show less growth potential than lesser cryptocurrencies in the market. So, in lieu of Bitcoin, should growth investors invest in XRP (XRP 6.95%) instead, given the chances of its sudden increase?
The differences between XRP and other cryptocurrencies
XRP is the native cryptocurrency of Ripple, a blockchain network used as a cheaper, faster, and more secure alternative to the popular SWIFT (Society for Worldwide Interbank Financial Telecommunication) protocol for money transfers. A few smaller financial institutions, like Travelex Bank, Tranglo, and Sentbe, utilize Ripple's XCurrent network for their financial transactions.
Nonetheless, these financial institutions primarily employ XCurrent to transfer traditional currencies, rather than utilizing XRP as a medium of exchange. This is why XRP has not gained significant momentum compared to other cryptocurrencies.
XRP cannot be mined like Bitcoin or other proof-of-work (PoW) tokens. In fact, Ripple pre-mined its entire supply of 100 billion tokens before its introduction in 2013, and it locked up more than half of those tokens in escrow accounts across its blockchain. It releases some of these tokens periodically to maintain liquidity.
XRP cannot be staked (locked up to earn rewards) like Ethereum's Ether and other proof-of-stake (PoS) cryptocurrencies. Moreover, its network does not natively support smart contracts - which are integral to deploying decentralized apps (dApps), non-fungible tokens (NFTs), and other crypto assets on PoS blockchains.
Why could XRP gain more attention?
XRP's fixed supply, inability to be mined, and lack of utility have made it a less appealing cryptocurrency. The legal lawsuit against Ripple by the U.S. Securities and Exchange Commission (SEC) in 2020, claiming illegal sales of unregistered securities, added to XRP's struggles.
Grayscale Investments shut down its XRP Trust in 2021 as a result of this lawsuit. Coinbase Global, a globally renowned cryptocurrency exchange, also prevented its New York users from trading XRP in 2021.
During the past 12 months, XRP's value has dropped by more than 15% and underperformed Bitcoin, Ethereum, and other top cryptocurrencies. Yet, three benefits could contribute to XRP's growth in the near future. First, Ripple's prolonged legal battle with the SEC ended in August with a less severe fine of $125 million. Although the SEC appealed the decision, it could face challenges overturning the results of this four-year legal battle.
Second, Grayscale reintroduced its XRP Trust as a closed-end fund (CEF) for accredited investors following Ripple's partial victory. Bitwise also submitted a registration statement to the SEC to launch the market's first spot price XRP ETF. These investments could bolster XRP's price stability and attract more mainstream investors. Consequently, Coinbase renewed its New York users' ability to trade XRP.
Lastly, Ripple plans to integrate Ethereum-compatible smart contracts into a new sidechain tethered to the XRP ledger. While this does not equate fully to native support for smart contracts, it could eventually draw more developers to XRP's network and encourage the use of XRP's token.
But is XRP a worthy alternative to Bitcoin?
XRP's near-term hurdles are gradually subsiding. However, I have doubts about its long-term advantages. Bitcoin features more potent catalysts on the horizon, such as becoming more challenging to mine with each four-year halving, attracting more institutional funds, and increasing adoption for payments.
XRP, on the other hand, remains a questionable long-term investment. It may prove promising for short-term trades, but it's not time to abandon Bitcoin and bet on XRP's potential outperformance.
Despite Bitcoin's concerns about less growth potential, some investors might consider diversifying their portfolio by investing in XRP. The legal battle between Ripple and the SEC has concluded with a less severe fine, allowing Grayscale to reintroduce its XRP Trust and Coinbase to renew XRP trading for New York users. Additionally, Ripple's plan to integrate Ethereum-compatible smart contracts could draw more developers to its network. However, Bitcoin's stronger catalysts and long-term advantages might make it a more reliable choice for investors seeking stability as a long-term investment. Intelligence in finance and investing should consider both options when managing financial resources.