3 Reasons Bitcoin Could Outperform XRP (Ripple) and Ethereum Over the Next Year

Source The Motley Fool

When it comes to cryptocurrency, one name stands out above the crowd: Bitcoin (CRYPTO: BTC). The original cryptocurrency accounts for roughly 63% of the entire crypto market cap.

However, Bitcoin is so big that it doesn't always produce the best returns. More recently, XRP (CRYPTO: XRP) has gotten a lot of attention as regulatory pressure eases on the company, and its utility has gotten a major boost from several advancements from Ripple. Meanwhile, Ether (CRYPTO: ETH) is often seen as the backbone of DeFi, with its smart contract blockchain doing most of the heavy lifting in the industry.

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While there's a case to be made for either to outperform Bitcoin, I think Bitcoin will ultimately outperform amid the current environment. Here are three reasons why investors should consider the king of cryptos.

A graphic representation of a Bitcoin token.

Image source: Getty Images.

1. The flight to quality

President Donald Trump has quickly and aggressively enacted wide-reaching tariffs on just about everything imported into the United States since taking office in January. Not only has he announced massive potential tariffs on imports, he's also paused them, said he will carve out exceptions, and unpaused certain tariffs.

All of this leads to massive amounts of uncertainty in the market. It's hard to know what to do with your money if the playing field could completely change tomorrow.

When markets are uncertain, they sell off riskier assets. That's certainly true of the entire cryptocurrency market, and Bitcoin hasn't been immune.

However, of all the cryptocurrencies investors could buy, Bitcoin is the highest-quality investment. It has significant institutional backing and a lot of big stakeholders, and the U.S. government now holds Bitcoin as part of its strategic cryptocurrency reserve. Investors selling risky altcoins are likely to move their money to Bitcoin.

As such, it's no surprise that Bitcoin has held up better than either XRP or Ethereum in the last few months. I expect that will continue to be the case as long as the macroeconomic environment remains uncertain.

2. Investors pulling money out of the U.S. markets

Since Trump's tariff announcement, we've seen both U.S. stocks and U.S. debt decline in value. That's not typically how it works. Remember, investors usually move from risky assets (stocks) to safer assets (Treasuries). However, the decline in Treasuries suggests investors are completely abandoning U.S. markets instead of shifting from risky assets to safer assets.

Those investors will be looking for a safe asset to buy. Foreign debt could be an option; gold is another, but Bitcoin presents an interesting case as well. That's particularly true as a result of a second-order effect from the mass exodus from U.S. securities. The U.S. dollar has grown significantly weaker in the last few weeks.

The U.S. Dollar Index has fallen more than 10% since Trump took office in January. The dollar weakened considerably after the tariffs were announced on April 2, and it failed to bounce back after Trump announced a pause on those tariffs. When the U.S. dollar weakens, it typically results in higher pricing for Bitcoin.

3. Inflation could push the price higher

Bitcoin is seen as a hedge against inflation. Most economists agree the tariffs will be inflationary.

That only makes sense. An escalating trade war with taxes on every import, from manufacturing equipment to parts to final products, will have a huge impact on the final price of goods. Combine that with the weakening U.S. dollar, and we'll see massive inflationary pressure.

Since Bitcoin has a fixed supply, a dollar that can buy less will theoretically apply to Bitcoin as well. That means the price of Bitcoin will go up.

The economics of Bitcoin don't exist in a vacuum, though. The three factors outlined here, all fallout from Trump's tariffs, point to Bitcoin performing relatively well compared to other cryptocurrencies and other assets in general. The longer the macroeconomic environment remains uncertain, the longer the trade war goes on, the more money we'll see flow into Bitcoin compared to other cryptocurrencies. As such, investors may see Bitcoin's dominance of the market extend even further over the coming months.

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Adam Levy has positions in Bitcoin, Ethereum, and XRP. The Motley Fool has positions in and recommends Bitcoin, Ethereum, and XRP. The Motley Fool has a disclosure policy.

Disclaimer: For information purposes only. Past performance is not indicative of future results.
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