Better Cryptocurrency to Buy Right Now With $2,000 and Hold for 5 Years: XRP vs. Bitcoin

If you're wondering about whether to invest $2,000 into Bitcoin (CRYPTO: BTC) or XRP (CRYPTO: XRP) for the purpose of a five-year hold, it's probably the case that both assets can do fairly well over that time. But that doesn't mean their odds of strong performance are equal, and the fact of the matter is that one of the pair is a bit more likely to take the prize.

Let's compare and contrast these two coins to see why that is.

Image source: Getty Images.

Bitcoin's edge is structural, if tarnished

As you may have heard, Bitcoin's supply is controlled by its halving events, which occur roughly every four years, slashing the amount of new Bitcoin mined per block in half.

Bitcoin's next halving is projected for early 2028, smack in the middle of our five-year time horizon. That's an important consideration here, as investors often drive up the price of the coin in advance of the halving while securing as much supply as they can. Over the long term, the constant constriction of supply is one of the most important factors forcing the coin's price upward.

But halvings are not magic for Bitcoin's price. If macro conditions turn hostile, the supply shock alone may not carry the day. And in the coming years, an extra wrinkle could weigh down sentiment about the asset.

That wrinkle is the risk posed by quantum computers, which could, in theory, one day be powerful enough to crack the encryption underpinning Bitcoin's chain. If that were to happen, it'd be disastrous, and it'd destroy a lot of the coin's value, perhaps permanently, as nobody wants to hold an asset that can be easily stolen.

Thus Bitcoin needs to change before those sufficiently powerful quantum machines arrive, which means it likely needs to change sometime in the next 10 years. Given its notoriously conservative developer culture, with major upgrades taking years, that almost certainly means the chain will need to get its act together sometime in the next five years -- and its price will doubtless suffer if it doesn't.

Proposals for guarding against the quantum computing threat are now in active discussion. Because everyone involved in the process is highly invested in Bitcoin and very motivated to succeed, it makes sense to be optimistic about the coin transitioning to the proper security posture eventually.

So Bitcoin's core features still make it a good option for investment, even if there's considerable uncertainty.

XRP has more moving parts

In contrast to Bitcoin, XRP's pitch is that it's a platform for institutional finance.

Ripple, the coin's issuer, is implementing a roadmap this year that includes a swath of critical new features like permissioned markets for regulated traders and investors, on-chain privacy functions, and native lending primitives, all of which are designed to make the XRP Ledger (XRPL) easier to use in regulated settings like banks. It's also the blockchain with the most comprehensive set of built-in tools for regulatory compliance, which helps it to appeal to regulated financial businesses.

For investors, that creates something Bitcoin doesn't have, which is product-based upside if the upgrades translate into measurable usage by the target audience. And Bitcoin's biggest threat, quantum computing, is going to be vastly easier to navigate for XRP, as it's developed largely by Ripple, which means it can avoid the need for lengthy consensus-building before a solution is implemented.

The main risk is that XRP's development roadmap is also effectively a list of its dependencies for growth. To consistently capture value from having new financial users onboard their capital for management on its network, it needs smooth (bank-grade) execution with its core technology, and it needs to offer a better user experience than they'd be able to get elsewhere. Beyond that, the XRPL effectively needs to win out against alternative technologies, so it's on a bit of a competitive treadmill from the get-go.

The conclusion here is that with XRP, more has to go right for it to continue to have a shot at onboarding more institutional capital. With Bitcoin, far fewer things have to go right for it to continue to grow.

And that's why Bitcoin is the better bet for $2,000 for most investors. But if you already hold plenty of Bitcoin, it could still make sense to diversify your crypto portfolio by buying some XRP.

Alex Carchidi has positions in Bitcoin. The Motley Fool has positions in and recommends Bitcoin and XRP. The Motley Fool has a disclosure policy.