Many cryptocurrency values have skyrocketed this year, thanks to the federal government taking steps to ease crypto regulation and even promote certain coins. For example, the Trump administration ended federal lawsuits and investigations against some crypto companies and exchanges, and signed an executive order creating a Strategic Bitcoin Reserve.
That's fueled a general sense of optimism among many cryptocurrency investors, and two popular cryptos that have benefited from this rosy sentiment are Ethereum (ETH -0.74%) and XRP (Ripple) (XRP 0.05%). Ethereum's token, Ether, has gained more than 70% over the past 12 months, while XRP is up over 400%.
But value increases aside, which of these cryptocurrencies looks like a better buy right now? Here are three reasons why Ethereum is likely the better place to put your money.
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1. Ethereum has more real-world usefulness
XRP was developed by Ripple Labs to support a network that enables banks and financial institutions to process foreign currency transfers more efficiently. Acting as a bridge currency, XRP streamlines cross-border payments by making them faster and more cost-effective.
But while this is certainly a legitimate use case, it's not as widespread as Ethereum's usefulness. For example, thousands of projects -- from decentralized applications (dApps) to smart contracts -- are built on Ethereum's network. Its widespread use as the backbone of Web3 services has resulted in companies including JPMorgan, Microsoft, and Visa using its blockchain for some tech and financial services.
2. It has a very active developer community
Nearly anyone can create a cryptocurrency, which is why there are millions of them (some of which are meme coins). But the best cryptocurrencies have dedicated and active developer communities that continually improve and update the coin's underlying network.
Ripple Labs is committed to making updates to the network, but it doesn't come close to the thousands of active developers Ethereum has. Ethereum has the largest blockchain developer community of any cryptocurrency, and that gives Ethereum a much better chance of sticking around for the long term and continually being updated to stay useful for large institutions.
3. Ethereum has more institutional backing
Ether has established itself as the second-largest cryptocurrency, and the usefulness of the Ethereum network has resulted in financial institutions launching Ethereum exchange-traded funds (ETFs) last year.
Ethereum ETFs make it easy for investors to buy and sell shares of funds that track the price movements of Ether. There are about a dozen of these ETFs now, and since their launch, at least $7.5 billion has been invested into the funds. This robust investor interest is a good indicator of Ether's popularity, and the backing from institutional banks for these funds gives the cryptocurrency a certain level of credibility.
There are a handful of XRP ETFs currently under review by the SEC and may have a good chance of receiving approval. But considering that they haven't launched yet and the demand for them is still unproven, Ether has the slight advantage here.
One word about crypto investments
It's important to mention that all cryptocurrency prices are volatile, even if the tokens have real-world use cases and institutional backing. I think Ether has a better chance of being a more stable investment than XRP, but that doesn't mean it won't experience some extreme volatility.
For example, Ether's price tumbled by more than 40% in the first four months of this year. Part of the decline was because of President Trump's tariff announcement, but Ether was sliding before that on economic fears. Investor fears have subsided since then, but the rapid decline in just a few months is a good indicator of just how volatile cryptocurrencies can be, even well-established ones.
If you do choose to buy Ether and other digital assets, it's a good idea to limit your total cryptocurrency portfolio to no more than 5% to 10% of your overall investments.
