Bitcoin traditionally leads the way in any new bull market rally for the crypto market. And that's precisely what has happened this year. Bitcoin's massive triple-digit gains this year have lifted the entire market, encouraging investors to seek out new altcoins (i.e., any coin that's not Bitcoin) to add to their portfolios.
Two altcoins that particularly stand out right now are XRP (XRP -2.10%) and Solana (SOL -5.76%). Both have turned in stellar performances this year, and both are showing up on the radar screens of investors looking for large-market-cap cryptos with long-term upside potential. So let's dig in to see which one is the better buy right now.
Recent performance
For the year, Solana has easily been the better performer, delivering 465% returns. Solana started the year trading for just $10, and is now trading around $55. Of all 25 cryptocurrencies with a greater than $3 billion market cap, Solana now ranks as the top performer of 2023, and it's not even close.
On the other hand, XRP has more closely tracked the performance of Ethereum. XRP is up 79% for the year, while Ethereum is up 70% for the year. Granted, XRP nearly doubled in price in mid-summer, but it has now given back almost all of those gains. So if you're only thinking short term, then Solana is the obvious winner.
Long-term growth prospects
But, remember, we're long-term investors here, and what we should really be interested in is the long-term growth potential of these cryptos, not recent market performance. And that's where things get interesting, because you could easily argue that XRP has the higher upside potential of the two, simply because it seems to be further along on the path to mainstream adoption.
XRP is the token powering the Ripple payment platform, which is a decentralized blockchain network primarily used for making cross-border transfers at very low cost. Since the launch of this payment network nearly a decade ago, Ripple Labs (the creators of the XRP token) has partnered with major financial institutions to build this technology.
Image source: Getty Images.
The focus for XRP has primarily been on cross-border remittances. However, the hope is that, as more and more financial institutions embrace this technology, new use cases could emerge. Most interestingly, the underlying Ripple payment technology could be used in the development of new central bank digital currencies.
In comparison, Solana's blockchain platform is much more in the early stages. That makes sense, since Solana only officially launched in 2020. Yes, everyone agrees that the Solana blockchain is already one of the fastest in the industry, capable of processing 65,000 transactions per second. But the big question is how institutions are actually going to use this extremely fast transaction-processing capability. One clue came this September, when Solana announced a partnership with Visa on the launch of a new payment project featuring stablecoins.
The regulatory factor
It's almost impossible to talk about these two cryptos without also mentioning the SEC. XRP has been embroiled in a long-running court battle with the SEC since December 2020. The SEC claims that XRP is actually an "unregistered security," and not a cryptocurrency. And Solana ran into trouble with the SEC this year, when three different court cases filed against major cryptocurrency exchanges indirectly named Solana as a potential "unregistered security."
So you can see the problem here. Both cryptocurrencies come with a sizable amount of regulatory risk. From my perspective, the XRP court battle seems to be nearing the final stages, while the Solana court battle may just be getting started. XRP's court battle has already lasted three years, and top executives at Ripple say it may end up costing more than $200 million to fight the SEC. So just imagine the potential future impact on Solana if the SEC is really serious about moving forward with any sort of enforcement action.
And the winner is...
As much as the choice between XRP and Solana should be about current market performance and future upside potential, it's really all about regulatory risk. If you are extremely risk-averse, then both of these cryptos may be too hot to handle. But, if you are willing to accept some of the volatility caused by regulatory risk, then Solana might end up being the better option. For now, Solana has only been mentioned indirectly in other lawsuits, and there is no sign that the SEC is ready to move directly against Solana.
Moreover, I really believe in the long-term growth potential of Solana. From my perspective, Solana is just now starting to fire on all cylinders and deliver on its early promise of being an "Ethereum killer," while XRP seems to have taken several steps backward as the result of its long-running SEC court battle. If forced to choose between XRP and Solana, I'm picking Solana.
