For crypto investors looking to go above and beyond Bitcoin (CRYPTO:BTC) for greater diversification or just more upside potential (at the cost of downside risk), Ethereum (CRYPTO:ETH) and XRP (CRYPTO:XRP) are more than worth looking into. Year to date, these two smaller cryptocurrencies have actually outperformed Bitcoin, with Ethereum and XRP both gaining around 20% versus Bitcoin’s modest 16% rise.
With the recent correction in Bitcoin and the relative near-term outperformance by ETH and XRP, should investors consider spreading their bets more broadly across the crypto market? Or is it best to stick with the leader, even as shares begin to fluctuate around $100,000-120,000?
Though I’m not against sticking with BTC, given that other cryptocurrencies tend to be highly correlated with its performance, I do think that those with the willingness to embrace more risk may wish to consider nibbling on the likes of an Ethereum or an XRP. But which up-and-comer has more room to run? Let’s find out.
The case for Ethereum
Ethereum may be outpacing Bitcoin modestly so far this year, but time will tell if the outperformance will last. Undoubtedly, ETFs (Exchange Traded Funds) have made crypto investing far more accessible to a broader range of investors. With the rise of Ethereum ETFs, it’s become just as convenient to bet on the number-two crypto as Bitcoin.
Given how far Ethereum has come in recent years, with its network upgrades and the government’s embrace of the crypto asset class as a whole (it’s not just about Bitcoin anymore), I see a fairly strong case for owning a bit of Ethereum alongside Bitcoin. As decentralized finance picks up momentum, it’s tough to tell how much higher Ethereum can fly relative to the likes of Bitcoin.
Fundstrat’s Tom Lee is a notable bull on Ethereum, going as far as to say the cryptocurrency can rise to a whopping $60,000 over the long term. That represents 1,500% upside from current levels. And while I wouldn’t be so quick to subscribe to Lee’s long-term price target, given how tricky it can be to predict the movement of a hyper-volatile asset whose price is determined by a profound number of variables, I do understand the bull case. Lee has high hopes for emerging technologies built on top of Ethereum.
While Lee is a massive bull, there are also some pundits out there who are skeptical. Notably, Andrew Kang thinks Lee’s forecast is “deeply flawed,” going as far as to say it’s “financially illiterate.”
I have no idea how things will pan out for Ethereum over the long haul. Its applications for next-gen use cases are intriguing, but that alone doesn’t make Ethereum worth buying up with both hands, expecting multi-bagger gains. Who knows? Perhaps it’s another crypto ecosystem that emerges as a big winner.
Although I’m skeptical about sky-high long-term price targets, like Lee’s, I do see considerable room for growth.
The case for XRP
At $2 and change per token, XRP stands out as more enticing for smaller retail investors out there. Add the explosive 372% past-year gain, which blew Ethereum out of the water, into the equation, and I think having a little bit of XRP sprinkled over a crypto portfolio can make a lot of sense.
As always, though, check in with your financial adviser and ask them about cryptocurrencies and how they can benefit the risk/reward profile of your portfolio. With XRP ETFs likely on the horizon, we could witness considerable inflows, similar to those enjoyed by Ethereum and Bitcoin.
Add the potential for central banks to start viewing cryptocurrencies beyond Bitcoin as a reserve asset, and I think there’s certainly an enticing bull-case scenario for crypto traders to get behind. Personally, I wouldn’t look to chase XRP after a hot past-year rally. Perhaps a pullback could be the time to give XRP a second look if you’re keen on adding it.
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