XRP (CRYPTO: XRP) is one of the most popular cryptocurrencies in the world. Formerly known as Ripple, it remains the token of the Ripple payment system. XRP is best known for its record-breaking run in 2017. That year, when Bitcoin’s (CRYPTO: BTC) 1,000% rise made headlines, XRP did far better with an earth-shattering 36,000% gain. Since then, things have cooled off a bit, but XRP remains one of the world’s most popular cryptocurrencies, in eighth place by market cap.
When you look at a smaller cryptocurrency like XRP, it’s tempting to wonder whether it could be “the next Bitcoin.” With its smaller market cap, it has the potential to deliver better returns than Bitcoin. Additionally, it offers some appealing technical features. In this article, I will explore the virtues of XRP to attempt to determine whether it could be “the next Bitcoin.”
Appealing features
Like many cryptocurrencies that were invented after Bitcoin, XRP has some advantages over its older cousin. These include
- Faster transaction times;
- Lower fees; and
- Less energy consumption.
The final item on this list is one you don’t see mentioned very often. It’s quite common for smaller Bitcoin competitors to be faster and cheaper, but you don’t often see cryptos that tout their environmentally friendly nature as a virtue. The XRP consensus mechanism works by an instantaneous poll, which works faster and more cheaply than Bitcoin’s proof-of-work system. The result is less energy consumption.
Bitcoin has some advantages, too
Despite the advantages that XRP has over Bitcoin, the latter has some advantages as well:
- “Brand” recognition
- Widespread acceptance by vendors
- Legal tender status in El Salvador and (soon) Arizona
These are big advantages. They mean that you can use Bitcoin to buy and sell actual goods in far more places than you can with XRP.
Bitcoin has another advantage as well: the ability to be tax sheltered through ETFs.
Through Purpose Bitcoin ETF (TSX: BTCC.B), you can protect your Bitcoin from taxation. BTCC.B, being stock market traded, can be held in a TFSA. That means you pay no taxes on capital gains you earn by trading it. In exchange for this privilege, you have to pay BTCC.B’s fund managers 1% per year. That’s a sizable fee, but it may be less than the capital gains tax on crypto holdings.
With XRP, there are fewer options for tax sheltering. Ripple ETFs do exist, but they aren’t widely available in Canada. Van Eck’s funds, for example, do not appear as tradable in my brokerage account. So, while the TFSA tax-sheltering strategy is technically available for XRP, it’s not going to be the easiest thing to pull off. This gives Bitcoin the edge over XRP on taxes.
Foolish takeaway
Bitcoin has come a long way since it was first invented in 2009. Rising all the way to a near-trillion-dollar market cap, it has become a major asset. That has been a positive for long-term holders. Now, though, with BTC already being massive, the easy gains might be over. Perhaps, then, it’s worth adding smaller alt coins like XRP to your portfolio.
