Got $3,500? Should You Buy Ethereum or XRP (Ripple)?

Among the major cryptocurrencies, few can reliably command as much attention as XRP (CRYPTO: XRP) and Ethereum (CRYPTO: ETH), as different as the two may be. Assuming that you're looking to hold onto either coin for at least three years or so, there are plenty of reasons that both could justify an investment of $3,500.

But there's a better option here. Let's analyze these two and build an understanding of which is the stronger choice.

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The case for buying Ethereum while it's cheap

As the second-most-valuable cryptocurrency after Bitcoin, Ethereum is one of the mainstays of the sector. There are quite a few reasons to expect that dynamic to continue.

Most importantly, Ethereum is the leading blockchain for issuing and maintaining smart contracts, minting non-fungible tokens (NFTs), and running decentralized finance (DeFi) applications. As more assets are tokenized and tracked via blockchains, a lot of that activity is going to be on Ethereum simply as a result of inertia. And, while it's a bit of a speculative use case at the moment, as artificial intelligence (AI) agents become more common and have a need to transact with each other, the chain's extensive smart contract functionalities are an obvious venue for them to do so. That could drive a huge amount of demand for buying ether coins, and soon.

Another factor making Ethereum worth buying with $3,500 today is that its price of about $2,700 is, compared to its historical prices, fairly low at the moment. It has declined about 8% during the past three years, so it hasn't exactly performed as well as many investors had anticipated either. Chains with faster transaction times and lower fees, specifically Solana, have been eating into its market share.

In other words, buying the coin today is a bet that as a result of continuing efforts to develop the chain and promote its ecosystem, the price will rise once the market recognizes that it is still a place of value generation. On a long enough time scale, that investment thesis will probably play out, at least to an extent.

The case for buying XRP

Whereas Ethereum's value is dependent on investors and developers buying the coin for its utility and also as a store of value underpinned by the chain's project ecosystem, XRP's focus is much narrower, and it rests on its merit as a medium of exchange alone.

As the coin is meant to be a tool for facilitating international money transfers between financial institutions like banks, the idea is that those players will need to buy and hold a sufficient amount of XRP for their needs, which tend to increase over time. Furthermore, when users transact with XRP, it generates some revenue via fees, which can then be used to improve the network and attract more users. That means it experiences a flywheel effect wherein more adoption drives the technology scaling to support even more adoption down the line.

Potential catalysts for more demand, such as the possible approval of exchange-traded funds (ETFs) that hold XRP, would be the icing on the cake, and also support higher prices. It's very likely that this coin will thus remain relevant and in demand for at least a handful of years to come, even despite the competition it faces among other transfer-oriented fintechs.

Unlike Ethereum, XRP's investment thesis has borne out during the past few years. Its price is up by more than 200% during the past three years alone. That does not mean it will repeat the same feat in the future.

But, when paired with the fact that it's continuing to be used and tested by financial institutions worldwide, including Bank of America, Santander, and perhaps even Western Union, it does make the coin a better bet than Ethereum at the moment. It may not always have the same momentum that it does today, but it clearly is not struggling to compete against powerful foes in the way that Ethereum is, which means that it has a much easier path toward delivering good returns for those who invest right now.

Should you invest $1,000 in XRP right now?

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Bank of America is an advertising partner of Motley Fool Money. Alex Carchidi has positions in Ethereum and Solana. The Motley Fool has positions in and recommends Bank of America, Ethereum, Solana, and XRP. The Motley Fool has a disclosure policy.