Cryptocurrency has been off to a bad start this year, with practically all the major names down by double digits. Unlike traditional assets such as stocks or bonds, digital currencies generally aren't tied to real-world economic activity, so it is difficult to pinpoint exactly what went wrong in the industry. But experts, such as Bitwise Asset Management Chief Investment Officer Matt Hougan when talking to CNBC, suggest that it may be part of a recurring boom and bust cycle with no specific cause.
The good news is that historically, cryptocurrency has always bounced back from these types of dips. And so far, there is little reason to assume this time will be any different. Let's discuss why Bitcoin (BTC +2.48%) and XRP (XRP +2.48%) could be excellent ways for investors to bet on a long-term rebound.
Bitcoin
With prices down by an eye-popping 23% from the start of the year, Bitcoin has given back practically all the gains it enjoyed in anticipation of President Donald Trump's election victory. That said, the economic uncertainty and pro-cryptocurrency government policy that sparked the rally remain in play. And the asset's strong brand is the icing on the cake.
CRYPTO: BTC
Key Data Points
Investors should never underestimate the power of a strong brand. Bitcoin's first-mover advantage has given it a dominant position akin to that of Coca-Cola in the soft drink market. And even though newer assets tend to surpass Bitcoin's speed and functionality, they can't encroach on its trust and name recognition.
Trust is crucial for attracting deep-pocketed institutional investors like endowments, pension funds, and insurance companies that are helping Bitcoin transition from a niche, speculative asset into a form of "digital gold" that can serve as a store of value despite not being used in the real world. These advantages become even more important during an industry downturn, when investors could pivot away from less-trusted assets.
Bitcoin can't be valued based on earnings or cash flow, so it is impossible to know when its valuation is cheap or expensive. That said, it has historically always recovered from declines and returned to record highs within a few years. And with the Trump administration's erratic trade policy shaking faith in the U.S. dollar, investors are incentivized to seek diversification into alternative stores of value.
XRP
With its market cap of $87 million, XRP is the fourth-largest digital asset. And while it doesn't enjoy the brand recognition of Bitcoin, its size helps it stand out from the thousands of smaller altcoins vying for investor attention. And despite near-term challenges, it looks like a long-term winner thanks to its strong technical performance and active developer community.
XRP was designed to serve as a bridge currency for international money transfers. And it improved upon the shortcomings of older blockchains with its capacity for 1,500 transactions per second and remarkably low transaction fee of just 0.00001 XRP, which is a fraction of a cent.
Image source: Getty Images.
And while newer cryptocurrencies have caught up to XRP in terms of raw performance, its early-mover advantage gives it brand recognition that helps it stay relevant. The platform's development team, Ripple Labs, has also worked hard to keep XRP in the spotlight by developing new assets, such as the stablecoin RippleUSD. RippleUSD shares the same ledger as XRP, boosting traffic on the network and transaction fees, a portion of which are removed from circulation through a process called burning.
And while XRP doesn't have the same level of prestige as Bitcoin, it can still attract institutional attention after the creation of several new XRP spot exchange-traded funds (ETFs). These allow investors to gain direct exposure to the asset without dealing with cryptocurrency-specific complexities such as digital wallets and custody.
Which cryptocurrency is the better pick?
With its much smaller size and active development team, XRP probably has more growth potential than Bitcoin. That said, in times of industry uncertainty, it makes sense to gravitate toward the latter's more established brand. Investors should also remember that while crypto looks poised to bounce back, it will be very difficult to time the bottom of this downtrend. It pays to be patient and keep a diversified portfolio.
