The cryptocurrency has surged 500% over the past year, with investors hoping that the legal issues plaguing XRP will soon end.
The stars seem to have aligned for cryptocurrency investors. Post-election nominations for Treasury Secretary and Securities and Exchange Commission (SEC) chair, plus a recent executive order, have made it clear to the markets that the U.S. government is shifting to a more pro-crypto stance.
While the buzz has propelled Bitcoin to new highs, the real winner has been XRP (XRP -4.26%). The crypto token’s price has increased by approximately 500% over the past year, most of which has occurred in the past few months. It can be tempting to dump Bitcoin, the largest and most widely known crypto, for something more exciting.
So, should investors move on from Bitcoin and ride XRP’s momentum instead?
Here is what you need to know.
Why is XRP doing so well?
Cryptocurrency prices ultimately rely on supply and demand. A coin can go viral and enjoy a temporary spike, but real-world adoption is key to driving the steady demand that supports the token’s long-term price. XRP is the token for the Ripple ledger, a blockchain technology used for cross-border transactions.
Currently, sending money from one country to another involves an international banking network (SWIFT) that can take hours (or even days) to verify and transfer the funds. Using Ripple, someone can exchange their currency for XRP, transfer it, and exchange it for another currency in seconds. That’s a strong use case with significant real-world value.
In 2020, the Securities and Exchange Commission sued Ripple Labs, the developer of XRP, for selling XRP tokens, alleging that the company violated securities laws. Ripple Labs won a largely favorable ruling last year, but the ongoing appeals process threatened to shroud Ripple Labs and XRP in uncertainty, which suppressed the token’s price.
With new SEC leadership and a potential shift to pro-cryptocurrency policies, investors are buying XRP in anticipation that the SEC may seek to end its fight.
Should investors forget Bitcoin?
It’s tempting to chase the shiny object, and XRP has legitimate long-term potential if it can integrate deeper into global payments. However, investors shouldn’t rush to abandon Bitcoin.
Bitcoin could take significant steps forward under the new U.S. government administration, and President Donald Trump’s recent executive order regarding digital assets signaled the potential creation of a federal stockpile. The order didn’t explicitly name Bitcoin, but it remains the largest cryptocurrency by far, with a $2 trillion market cap, roughly 5 times the size of Ethereum, the next largest. It’s hard to imagine a government strategy for digital assets that does not include Bitcoin.
If the United States adopts a strategic reserve that includes Bitcoin, it could be a massive catalyst. It would likely push other countries to follow suit and increase institutional accumulation.
Why choose? This could be the better approach.
The great thing about investing is that you don’t have to choose one or the other. The reality is that Bitcoin and XRP serve different purposes, so investors can easily justify owning both in a diversified portfolio.
XRP’s market cap is the third-largest among cryptocurrencies, but it is still just $179 billion today, less than 10% of Bitcoin’s. Ripple’s chief legal officer expressed optimism following the initial lawsuit ruling that U.S. banks might adopt XRP as the lawsuit clouds clear. Of course, only time will tell whether that happens. If it does, it could strengthen the case for XRP to be included in any potential strategic reserve.
There are still quite a few unknowns, and some of these questions may take time to answer. Still, the developments within the government seem to indicate that cryptocurrencies could see an uptick in adoption over the next several years, giving investors plenty of justification to buy and hold cryptos with real-world utility like these two.
Justin Pope has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Bitcoin, Ethereum, and XRP. The Motley Fool has a disclosure policy.
