In the event of a potential trade conflict arising, should one consider investing in Bitcoin or XRP?
In these tumultuous times, with fears of a trade war looming and creating turmoil in traditional markets and cryptocurrencies alike, even seasoned investors might be sweating over their portfolios. Even veteran coins like XRP (-3.37%) and Bitcoin (-2.57%) are starting to feel the jitters. But if a full-blown trade war does break out thanks to the Trump administration's policies, which token might hold steady, or even flourish? Let's break down the case for both, starting with XRP.
Bears aren't the only ones roaming around here
For XRP to thrive, a couple of things need to happen. Firstly, banks and financial institutions have to show an interest in purchasing and hoarding the token. They'll need to believe that doing so will help them avoid foreign currency exchange fees and incurring costs associated with international money transfers. Why? Because the crypto is a more economical alternative to legacy money transfer methods.
Secondly, banks need to engage in frequent, cross-border transactions with one another. This generates usage fees, which are paid back to the XRP network.
In a trade war scenario, the incentives for banks to keep transacting the first way remain the same. There could even be an upside for XRP if parties need to tack on the costs of tariffs to their transfers. That said, a large number of tariffs might reduce trade volumes as buyers pay more for goods, leading to fewer international transfers. As a result, XRP could yield less in fees.
While the token's price might not necessarily tank under these circumstances, fewer transfers are never great news for investors.
Is XRP a reliable port in a storm?
Bitcoin has remained steadfast over the past three months, suggesting neutral market sentiment towards its worth in a trade war. But it's tricky to pinpoint exactly why its value might decrease if trade barriers put a damper on U.S. growth. With Bitcoin not used much for trade transactions or anything else, the price drop would probably stem from a more general retreat from riskier assets due to rising fear.
Now, it's entirely possible that a deep recession triggered by a trade war could lead investors to sell their Bitcoin to cover daily expenses. But given the current economic climate, this is somewhat unlikely. However, the looming tariffs could limit investment capital allocated to Bitcoin.
On the flip side, inflationary pressures caused by a trade war might spark investor interest in Bitcoin, which is often considered a hedge against inflation. With that said, Bitcoin might not be an amazing hedge compared to difficult-to-fault assets like gold.
Compare these uncertainties to XRP's issues, and it's easy to see why Bitcoin might be the safer bet if trade tensions worsen. While both cryptocurrencies have their fair share of challenges, Bitcoin's decentralized nature and reputation as a store of value make it less vulnerable to regulatory pressures.
In a trade scenario, you might want to consider investing in Bitcoin if there's a significant market plunge due to panic. And keep in mind that trade wars only last a certain time, and there's nothing intrinsically harmful about trade wars that necessarily undermines Bitcoin's investment thesis.
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In considering which cryptocurrency might hold its ground during a trade war provoked by the Trump administration's policies, several aspects come into play.
Bitcoin
- Market Resilience: Bitcoin has historically proven resilient during times of economic uncertainty. It is often seen as a store of value or a hedge against inflation, similar to gold[4].
- Decentralized Nature: As a decentralized currency, Bitcoin is less subject to regulatory pressures compared to XRP, which is linked to Ripple and has faced legal challenges from the SEC[5].
- Investment and Adoption: Bitcoin continues to draw the attention of institutional investors and has been adopted by various entities as a form of reserve or hedge against economic volatility[4].
- Contrarian View: Some analysts believe that Trump's tariffs could boost the U.S. economy and, by extension, increase Bitcoin's value due to its potential as a safe-haven asset[3].
XRP
- Regulatory Uncertainty: XRP is still ensnared in a lawsuit with the SEC, which generates uncertainty and possible regulatory risks[5].
- Use Case: While XRP offers a clear use case within the Ripple Payments network, its value is speculative, and its application as a store of value is less acknowledged compared to Bitcoin[4].
- Market Performance: XRP hasn't surpassed its 2018 record high and has experienced significant price volatility[5].
- Trump Administration Impact: Despite Trump's pro-crypto stance, XRP's regulatory challenges and market volatility make it less stable compared to Bitcoin during economic turbulence[1][5].
In light of the uncertainty caused by potential trade war implications, some investors might consider diversifying their portfolios to include cryptocurrencies as a potential hedge. Bitcoin, with its decentralized nature and reputation as a store of value, could be attractive due to its historical market resilience during economic uncertainty.
On the other hand, XRP, linked to Ripple and often used for international money transfers, could benefit from higher transaction fees in a trade war scenario, as parties may need to account for tariff costs in their transfers. However, increased tariffs could also reduce trade volumes, resulting in fewer international transfers and lower fees for the XRP network.
Despite XRP's potential advantages, it's important to articulate the associated risks, such as regulatory uncertainty due to the ongoing lawsuit with the SEC. Investors should weigh these considerations carefully before deciding whether to invest in XRP, Bitcoin, or other cryptocurrencies during a potential trade war.
Ultimately, articulating a well-reasoned investment strategy and remaining informed about the latest news and developments in the cryptocurrency market can help investors make informed decisions, regardless of the global economic climate.
