It has been a remarkably eventful year for the crypto sector. Crypto prices rocketed higher after Donald Trump's presidential election victory in November 2024, largely due to the prospect of an incoming pro-crypto administration. Yet while the Trump administration has issued many favorable executive orders and Congress has also passed substantial cryptocurrency legislation, the rally has fizzled out due to an array of macroeconomic concerns.
Bitcoin (BTC +0.61%), the world's largest cryptocurrency, is now down about 10% this year (as of Dec. 18), while XRP (XRP +0.23%) is down more than 21% this year. Which is the better buy?
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Bitcoin: The digital debasement trade
Bitcoin, the original cryptocurrency created by the unidentified programmer Satoshi Nakamoto, has long led the sector and often served as a bellwether for the industry. Bitcoin continues to operate on the proof-of-work consensus mechanism, which many major networks have moved away from due to the significant amount of energy consumed and the inefficiency of the system in processing transactions.
However, this hasn't stopped Bitcoin from leading the pack, largely due to a growing thesis that Bitcoin and its 21 million finite coin supply can serve as a form of digital gold and therefore as a hedge against inflation. Bitcoin is also benefiting from what's known as the debasement trade. Many investors are increasingly concerned that the U.S. government's growing pile of debt, the fiscal deficit, and the Federal Reserve's constant printing of money will essentially make the dollar worth significantly less over time, which is why assets like gold have done so well.
CRYPTO: BTC
Key Data Points
Now, many still question this thesis because Bitcoin often trades like a high-beta tech stock and has struggled since October, while also starting to deviate from gold. The token has fallen by more than 30% from its record high made in October. However, Bitcoin has survived so many declines like this in its short life that many investors still have high confidance.
Additionally, the regulatory environment for crypto has improved markedly under Trump, whether you consider the creation of a U.S. Strategic Bitcoin Reserve, the implementation of Bitcoin-friendly regulators and advisors, and Congressional legislation intended to clear up regulatory gray areas.
XRP: A potential player in international payments
XRP, now the fifth-largest cryptocurrency by market cap, has benefited immensely from the new administration. Trump installed new regulatory leaders, particularly at the U.S. Securities and Exchange Commission (SEC), which led the agency to drop a major lawsuit against Ripple, the company behind XRP, as well as its co-founders.
XRP operates on a robust technical network capable of processing 1,500 transactions per second (TPS), making it a potential player in the global payments market. Ripple has also built an interesting ecosystem that attempts to bridge the gap between traditional banks, investors, and the crypto world. The company's solutions span instant payments, custody of digital assets, stablecoins, and a multi-asset prime brokerage.
CRYPTO: XRP
Key Data Points
The advantage for institutions in the payment sector is that they can send instant payments abroad, leveraging XRP, the network, and Ripple's stablecoin, RLUSD, with tremendous flexibility. This allows for conversions between various fiat currencies and cryptocurrencies at low cost. XRP also enables on-demand liquidity, which means banks don't need to pre-fund foreign accounts, providing financial institutions with better flexibility in terms of their own capital and liquidity.
Ripple already has several traditional bank customers. The bigger question is, can it truly capture a meaningful share of international payments amid the competition from other cryptocurrencies and traditional solutions?
Which is the better buy?
Both Bitcoin and XRP have immense potential, in my opinion, so I think a smaller, more speculative position in both tokens is at least warranted. However, I ultimately prefer Bitcoin to XRP. Although the digital gold narrative cannot be fully confirmed at this time, I believe Bitcoin can offer a unique form of diversification that few assets can provide.
Furthermore, Bitcoin's total market cap is still only a fraction of gold's, so it's not being given the full weight of the digital gold argument. Bitcoin's resilience after extreme sell-offs also gives me added confidence in the token's long-term staying power.
