The value of many cryptocurrencies has soared over the past year, as the government takes a more hands-off approach to this market and as investors have expanded their appetite for riskier investments.
Bitcoin (BTC 1.40%) and XRP (Ripple) (XRP 1.48%) have come along for the ride, with Bitcoin's value rising 83% and XRP gaining 390% over the past year. If you're trying to decide between the two, here are a few things to consider -- and why you should be cautious about putting too much money into any cryptocurrency right now.
Why Bitcoin has surged
There are a few factors that drove Bitcoin's price higher over the past year, most notably the launch of exchange-traded funds (ETFs) last year that make it easy for people to invest Bitcoin. These funds own the Bitcoin and then sell shares of the cryptocurrency fund to investors, making crypto ownership as easy as buying stocks.
Since their launch, Bitcoin ETFs have accumulated more than $150 billion of assets under management (AUM), showing that demand is high for Bitcoin ownership.
Secondly, macroeconomic uncertainty has likely helped boost Bitcoin's value. The cryptocurrency is viewed by some investors as digital gold, in the sense that it's a safe place to put money when the economy is uncertain. The job market is showing signs of slowing down -- ADP data showed a loss of 3,000 jobs in August and a decline of 32,000 in September -- in addition to ongoing concerns about how tariffs will affect the economy.
What's more, the Federal Reserve recently cut interest rates, and economists are expecting more cuts before the end of the year. Rate cuts often encourage investors to put money into riskier investments like cryptocurrencies, which may also be helping to fuel Bitcoin's rise.
CRYPTO: BTC
Key Data Points
Why XRP gained significant momentum
One of the main reasons why XRP has risen over the past year is that the government has taken a lighter regulatory touch toward crypto. XRP perhaps has benefited more than other cryptocurrencies because the SEC recently dropped a lawsuit against Ripple Labs, the maker of the XRP coin.
The lawsuit, which began back in 2020 under President Trump's first term, stated that Ripple was selling unregulated securities. But with the Trump administration shifting its stance toward cryptocurrencies (Trump, oddly, has his own meme coin), the SEC has dropped the lawsuit, though Ripple had to pay a $125 million fine.
That positive news has been a boost to XRP, and it comes at the same time that XRP ETFs could soon launch. The SEC is in the process of approving the ETF applications for XRP funds from financial firms, and they could be approved as soon as this month. It's worth noting that the current government shutdown could delay any potential approval.
If the XRP ETFs are approved, it could give further credibility to the coin, making it just one of three (the other being Bitcoin and Ethereum) approved spot cryptocurrency ETFs. This could mean billions of dollars are invested into the new funds.
CRYPTO: XRP
Key Data Points
Bitcoin is the better crypto buy, but be cautious
Between these two leading cryptocurrencies, I think Bitcoin is the better one to own right now. The coin's relatively longer history (15 years of existence is much longer than most cryptos, 2 years longer than XRP's story) has shown that, over time, Bitcoin tends to remain in demand among investors.
The coin has experienced some very significant boom-and-bust cycles, and yet it's always rallied back afterwards. That's no guarantee its value will go up over time, but it does indicate that there are enough investors interested in it that it's been able regain its momentum in the past.
XRP doesn't have quite the same long history, and the recent interest in the coin is exactly that: recent interest. XRP ETFs could push the coin's value higher, but to what degree and whether it's a sustainable catalyst is unknown.
Which leads me to one caveat before buying Bitcoin right now: Expectations for its growth are sky high. Investors of cryptocurrencies and stocks alike appear to have a very optimistic view of their investments right now, and it may be driving values of equities and digital coins higher than warranted.
That doesn't mean buying Bitcoin right now is a mistake. Still, if you're just starting a position, it's worth remembering that the digital coin often experiences significant price swings. Any significant shift in the crypto market could pour cold water on Bitcoin's value in the short term.
