Bitcoin vs XRP: Understanding Two Giants of the Crypto World

Key Takeaways

• Bitcoin and XRP each play vital roles in the cryptocurrency ecosystem.
• Bitcoin’s appeal as a decentralised store of value continues to attract investors.
• XRP’s utility in transforming cross-border payments positions it as a leader in blockchain-based finance.
• XRP’s deflationary supply, institutional focus, and scalability ensure it will remain a crucial player in the evolving crypto space.

Back in 2009, bitcoin burst onto the scene, introduced by the mysterious Satoshi Nakamoto. Through its now-iconic whitepaper, bitcoin pioneered the idea of a decentralised digital currency operating on a secure and immutable blockchain.

Since then, bitcoin has cemented its status as the dominant cryptocurrency, and it continues to represent over 50%¹ of the total crypto market capitalisation. Nowadays, bitcoin is hailed as a ‘store of value’, often compared to digital gold, and institutions are increasingly incorporating it into their multi-asset portfolios to enhance their risk-return metrics.

XRP followed shortly after bitcoin, and it aimed to revolutionise cross-border payments with speed and efficiency. By way of example, Tranglo, a leading cross-border payment hub, has integrated Ripple’s On-Demand Liquidity service that leverages XRP to facilitate instant cross-border transactions without any need for pre-funding accounts².

WisdomTree’s digital asset taxonomy classifies both bitcoin and XRP as Layer-1 payments but, despite its utility, XRP’s market capitalisation is significantly smaller than bitcoin’s:

• Bitcoin: $1.9 trillion³
• XRP: $83 billion⁴

The stark market cap difference raises a question: could XRP ever catch up with bitcoin?

Market perception: store of value vs utility token

Bitcoin and XRP are perceived through vastly different lenses.

• Bitcoin: seen as ‘digital gold’, is valued for its decentralisation, capped supply of 21 million coins, and resilience against inflation. This narrative resonates strongly with investors, reinforcing its position.
• XRP: designed for institutional use and is primarily regarded as a utility token enabling cost-effective, efficient cross-border payments. Its strong ties to the financial sector highlight its use case in payment innovation.

The re-election of Donald Trump, known for his pro-crypto stance, has injected fresh optimism into the market, with expectations of favourable regulatory policies giving both bitcoin and XRP a price lift.

Figure 1: Bitcoin and XRP prices in USD

Figure 1 clearly reflects the market’s optimism, with bitcoin price reaching its all-time high of more than $99k in November and XRP climbing to the levels it was at back in 2021.

Limited supply dynamics

As shown in Figure 2, both bitcoin and XRP have limited supply, which contributes to their scarcity and value proposition. To clarify the terms used:

• Circulating supply is the number of coins currently circulating in the market and available for public trading.
• Maximum supply is the total number of coins programmed to exist, as determined by the underlying code of the cryptocurrency.
• Total supply is the maximum number of coins, adjusted for those that have been irreversibly removed from circulation (for example, through burning).

Figure 2: Limited supply

One of the primary distinctions between bitcoin and XRP lies in their total supply. While bitcoin’s total supply remains static at 21 million coins, XRP’s total supply is deflationary due to transaction fee burning.

Whenever a transaction occurs on the XRP Ledger, a small amount of XRP is permanently removed from circulation as a transaction fee. This burn mechanism ensures a gradual reduction in XRP’s total supply over time. To date, just over 13 million of XRP have been burned, resulting in a total supply that is slightly under the original 100 billion XRP coins.

By contrast, bitcoin’s total supply is fixed and does not decrease over time. While coins may be lost due to forgotten private keys or mishandling, this is not a deliberate feature of the system.

The deflationary nature of XRP’s total supply sets it apart and adds a unique dimension to its long-term economic model. Conversely, bitcoin’s capped and unchanging supply solidifies its position as a digital asset with absolute scarcity, akin to ‘digital gold’.

Different user types

Bitcoin and XRP cater to distinct user groups, with bitcoin predominantly serving retail users and XRP designed for institutional use.

Bitcoin primarily appeals to retail users due to its accessibility and decentralised nature. Key aspects of bitcoin’s retail use include:

• Remittances: bitcoin enables individuals to send money internationally at significantly lower fees compared to traditional remittance services. Its peer-to-peer nature eliminates the need for intermediaries, offering a faster and more cost-effective solution.
• Financial inclusion: in regions with limited access to traditional banking infrastructure, bitcoin serves as a decentralised and accessible gateway for individuals to participate in the global economy.

While bitcoin is increasingly attracting institutional interest, its retail adoption remains its cornerstone. This is driven by its widespread accessibility, its established reputation as the first cryptocurrency, and its large and active community.

XRP, by contrast, in designed with institutional users in mind, particularly in the realm of international finance and cross-border payments. Its primary focus is on providing fast, cost-effective, and reliable solutions for financial institutions.

• Cross-border payments and liquidity management: XRP acts as a bridge currency, enabling financial institutions to settle international transactions quickly and at low cost. This eliminates the need for pre-funded nostro accounts, significantly reducing liquidity costs.
• Proven reliability: since its inception, XRP has processed over 3.3 billion transactions, representing more than $1 trillion in value without any failures or security breaches. This track record reinforces its position as a robust solution for banks and financial institutions.

Through its scalability, speed, and institutional-grade reliability, XRP provides a tailored solution for optimising cross-border payment systems, making it a key asset for the financial sector.

Transaction speed and throughput

When it comes to transaction speed, XRP outpaces bitcoin by a wide margin:

• XRP handles up to 1,500 transactions per second (TPS), settling each in 3-5 seconds.
• Bitcoin processes approximately 7 TPS, with settlement times averaging 10 minutes per block (and potentially longer during congestion).

Figure 3: Transaction per second count

XRP’s efficiency makes it a strong contender for real-time payments, while bitcoin’s slower pace emphasises security and decentralisation.

The road ahead: can XRP catch up?

For XRP to rival bitcoin’s $1.9 trillion market cap, transformative shifts would be essential:

• Mass adoption: XRP must see a surge in usage for payments, remittances, and other applications.
• Regulatory clarity: favourable regulations could attract more institutional investment.
• Ecosystem expansion: new partnerships and innovations extending XRP’s utility beyond payments.
• Market sentiment: a broader pivot towards altcoins over bitcoin.

To match bitcoin’s market capitalisation, XRP’s price would need to increase more than 20x from its current levels. This monumental challenge underscores bitcoin’s entrenched dominance and unique value.

Conclusion

Bitcoin and XRP each play vital roles in the cryptocurrency ecosystem. Bitcoin’s appeal as a decentralised store of value continues to attract investors, while XRP’s utility in transforming cross-border payments positions it as a leader in blockchain-based finance.

Though surpassing bitcoin’s market cap remains an ambitious goal, XRP’s deflationary supply, institutional focus, and scalability mean it will likely remain a crucial player in the evolving crypto space.

¹ Coin360. 27 November 2024.
² Please see https://www.tranglo.com/odl/ for further detail.
³ Messari. 27 November 2024.
⁴ Messari. 27 November 2024.

Important Risks Related to this Article

Crypto assets, such as bitcoin and ether, are complex, generally exhibit extreme price volatility and unpredictability, and should be viewed as highly speculative assets. Crypto assets are frequently referred to as crypto “currencies,” but they typically operate without central authority or banks, are not backed by any government or issuing entity (i.e., no right of recourse), have no government or insurance protections, are not legal tender and have limited or no usability as compared to fiat currencies. Federal, state or foreign governments may restrict the use, transfer, exchange and value of crypto assets, and regulation in the U.S. and worldwide is still developing. Crypto asset exchanges and/or settlement facilities may stop operating, permanently shut down or experience issues due to security breaches, fraud, insolvency, market manipulation, market surveillance, KYC/AML (know your customer/anti-money laundering) procedures, non-compliance with applicable rules and regulations, technical glitches, hackers, malware or other reasons, which could negatively impact the price of any cryptocurrency traded on such exchanges or reliant on a settlement facility or otherwise may prevent access or use of the crypto asset. Crypto assets can experience unique events, such as forks or airdrops, which can impact the value and functionality of the crypto asset. Crypto asset transactions are generally irreversible, which means that a crypto asset may be unrecoverable in instances where: (i) it is sent to an incorrect address, (ii) the incorrect amount is sent, or (iii) transactions are made fraudulently from an account. A crypto asset may decline in popularity, acceptance or use, thereby impairing its price, and the price of a crypto asset may also be impacted by the transactions of a small number of holders of such crypto asset. Crypto assets may be difficult to value and valuations, even for the same crypto asset, may differ significantly by pricing source or otherwise be suspect due to market fragmentation, illiquidity, volatility and the potential for manipulation. Crypto assets generally rely on blockchain technology and blockchain technology is a relatively new and untested technology which operates as a distributed ledger. Blockchain systems could be subject to internet connectivity disruptions, consensus failures or cybersecurity attacks, and the date or time that you initiate a transaction may be different then when it is recorded on the blockchain. Access to a given blockchain requires an individualized key, which, if compromised, could result in loss due to theft, destruction or inaccessibility. In addition, different crypto assets exhibit different characteristics, use cases and risk profiles. Information provided by WisdomTree regarding digital assets, crypto assets or blockchain networks should not be considered or relied upon as investment or other advice, as a recommendation from WisdomTree, including regarding the use or suitability of any particular digital asset, crypto asset, blockchain network or any particular strategy.