Got $1,000 and Willing to Hold for 3 Years? Is It Better to Buy XRP or Bitcoin?

Bitcoin (CRYPTO: BTC) and XRP (CRYPTO: XRP) are both leading cryptocurrencies, but they have very different investment theses. Where Bitcoin's pitch is that its scarcity is the only feature it really needs to succeed, XRP's path to growth is more complicated, involving new tech, new collaborations with potential users, and plenty of wrangling with regulators around the world.

So which of these coins is the better play if you're looking to invest $1,000 today and hold whatever you buy for the next three years?

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Bitcoin's scarcity will take plenty of time to play out

This month, Bitcoin will surpass a total of 20 million coins mined, about 95% of the 21 million that will ever exist. Right now, only about 450 new coins enter circulation each day, and when the next halving arrives in 2028, that will drop to just 225. Factor in that an estimated 3 million to 4 million coins are permanently lost to forgotten passwords or other causes, and the supply actually available for purchase is considerably smaller than the headline figure.

So Bitcoin is already a scarce asset, and it's going to get a lot scarcer over time. Its scarcity is baked into its protocol and won't be changing. Nor will any major new capabilities or features be added to the chain anytime soon. And over the coin's history of use as a store of value, its unchanging nature has been instrumental in helping it to grow, as investors don't need to account for the risk of it losing its most essential properties.

Inability to change doesn't necessarily equate to rapid growth. The coin can't really react to changes in macro or market conditions, and its scarcity mostly pays off over the very long term. But thankfully, Bitcoin doesn't need to double for you to do well during the next three years, it just needs to keep grinding higher as its supply growth slows.

XRP needs Ripple to keep shipping

Much like Bitcoin, XRP sold off a lot recently, and its price is down by 32% during the past three months (as of March 11). It's been five consecutive down months, and a majority of holders probably are sitting on unrealized losses.

At the same time, many of the catalysts that investors were looking to for growth have played out as well as possible. Ripple, XRP's issuer, no longer faces a legal challenge from the Securities and Exchange Commission (SEC), and there are now a handful of XRP exchange-traded funds (ETFs) on the market, bringing the opportunity for fresh capital inflows to the XRP Ledger (XRPL). Yet the price of XRP kept sliding. Its price now depends on whether Ripple can convert its 300-plus banking partnerships for the XRPL into sustained use of XRP to pay for using the network.

To accomplish that goal, Ripple needs to continue to develop the fintech tools, features, and regulatory compliance capabilities of the XRPL to incentivize its target users to move their capital onto the chain for management. Thus far, there are $426 million in stablecoins parked on the XRPL, which suggests that the process of capital onboarding is still in the early stages of what Ripple envisions.

But in terms of how XRP measures up to Bitcoin, there's already enough information to make a call.

Through early 2029, Ripple will be rolling out a swath of upgrades to the XRPL. In all probability, Bitcoin won't be adding a single new feature intended to attract new buyers. If Ripple gets its product-market fit correct, XRP could grow by a lot, maybe more than Bitcoin -- but its path is simply far more rife with risk, as it's in competition with many other businesses. So there's less that can go wrong with a Bitcoin investment, which is why it's probably the better choice for most investors to buy with $1,000.

Of course, if you already have a diversified crypto portfolio with plenty of Bitcoin, it's not a bad idea to grab 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.