Among the list of top cryptocurrencies trading for less than $1, two names stand out: XRP (XRP 0.65%) and Polygon (MATIC +0.00%). XRP and Polygon are trading at nearly the same price range ($0.60 to $0.70), and both are top-15 cryptocurrencies by market cap. But the fortunes of the two have diverged widely this year -- XRP is up almost 90%, while Polygon is down nearly 10% for the year.
On the surface, XRP would appear to be the superior investment, but is it really? Let's take a closer look to see which is the better buy.
XRP
Let's start off with XRP (formerly known as Ripple), which has been riding high this year, largely on the strength of a favorable ruling in its long-running legal battle with the Securities and Exchange Commission. In July a court ruled that XRP was not an unregistered security sold to individual investors in violation of U.S. securities laws. That was widely hailed as a major win for XRP. No surprise, then, that XRP immediately rallied nearly 80% on the news.
That's an important point to keep in mind, since XRP is starting to give back some of those gains from July. That raises questions about how much higher XRP can go. Amidst all the bullish SEC hype earlier this summer, some investors were expecting XRP to blow past the $1 mark and go parabolic from there.
Image source: Getty Images.
But that looks like it's not going to be the case, and there's a good reason: XRP faces an enormous amount of competition. When XRP originally launched nearly a decade ago, its use of blockchain technology for financial transactions was revolutionary, and XRP became a tech industry darling. But then came the SEC court case in 2020, as well as a lot more competition from new blockchain networks such as Solana and Avalanche promising lower fees and faster transaction processing speeds. So it's not exactly clear that XRP is still the best-in-class competitor anymore.
Polygon
In many ways, Polygon faces a similar problem in terms of competition. Polygon is a Layer-2 blockchain network that helps the Ethereum (ETH 1.57%) blockchain to run significantly faster and more efficiently than it would on its own. A Layer-2 network sits on top of the core Layer-1 blockchain, so Polygon directly benefits from its close relationship with Ethereum.
Like XRP, Polygon was revolutionary when it launched, helping to popularize the concept of Layer-2 blockchains. It, too, became a crypto market darling. In 2022, Polygon was signing deals with the likes of Disney, and the future seemed bright. But now a number of new competitors have emerged, and it's no longer obvious that Polygon is best in class.
Moreover, just like XRP, Polygon faces potential regulatory risk. Back in June, the SEC named Polygon as an unregistered security in its lawsuits against cryptocurrency exchanges Coinbase Global and Binance. While there was no direct SEC enforcement action aimed at Polygon, the market panicked, sending Polygon down nearly 20% in just a 24-hour period. Thus, you could easily make the case that, while XRP seems to be close to resolving its regulatory problems with the SEC, Polygon is just getting started.
The Ethereum factor
Based on the above, it might seem like XRP is the better buy. Both cryptos have their share of problems and issues, which explains why they're both currently in the sub-$1 crypto bargain bin. But XRP seems to have more clarity around its future, as well as a highly dedicated user base that has stood with XRP through more than two years of fear, uncertainty, and doubt (FUD). You can't put a price tag on that type of loyalty.
CRYPTO: XRP
Key Data Points
However, Polygon might actually be the better long-term buy, thanks to its relationship with Ethereum. As noted above, Polygon's business model is literally hitched to that of Ethereum. So if you believe that Ethereum is headed up long term, then Polygon should go along for the ride. In the past, Vitalik Buterin, the co-founder of Ethereum, has been vocal about his support for both Polygon and the Layer-2 networks in general. He has promised that these Layer-2 blockchains would continue to play a big role in the development of Ethereum, even after The Merge upgrade.
So if forced to choose between XRP and Polygon, I would choose Polygon. Yes, its performance this year has been ugly. Yes, it faces potential SEC regulatory risk. And yes, it's facing new competition from other Layer-2 rivals. So this decision is based, to a large extent, on the Ethereum factor. As long as Vitalik Buterin remains a fan of Polygon, then it's hard not to like this crypto's future prospects.
