When it comes to cryptocurrency, one name stands out above the crowd: Bitcoin (Cryptography: BTC). The original cryptocurrency accounts for approximately 63% of the crypto market capitalization.
However, Bitcoin is so big that it doesn’t always produce the best returns. Recently, XRP (Cryptography: XRP) As regulatory pressures ease on the company, it has attracted a lot of attention, and its usefulness has gained a great boost from some advances from Ripple. Meanwhile, ether (Encryption: ETH) It is often considered the backbone of Defi, as its smart contract blockchain is doing most of the heavy lifting in the industry.
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There are cases where either one is made to outperform Bitcoin, but I think Bitcoin will ultimately be outperformed in the current environment. Below are three reasons why investors should consider the King of Cryptos:
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Since taking office in January, President Donald Trump has quickly and aggressively enacted widespread tariffs on almost everything imported into the United States. Not only did he announce large potential tariffs on imports, he also suspends, says he will carve out exceptions and not tolerate certain tariffs.
All this leads to a large amount of uncertainty in the market. If the arena could completely change tomorrow, it’s hard to know what to do with your money.
If the market is uncertain, sell high-risk assets. That certainly applies to the entire cryptocurrency market, with Bitcoin not immune to it.
However, of all cryptocurrencies investors can buy, Bitcoin is the highest quality investment. It has important institutional support and many major stakeholders, and the US government currently holds Bitcoin as part of its strategic cryptocurrency reserve. Investors selling high-risk altcoins may move their money to Bitcoin.
So it’s no surprise that Bitcoin has outperformed XRP or Ethereum in the last few months. As long as the macroeconomic environment remains uncertain, I think that remains true.
Since Trump’s tariff announcement, it has been found that both US stocks and US debt have been devalued. It’s not usually how it works. Investors should generally remember to move from dangerous assets affiliated to safer assets (Ministry of Treasury). However, the Treasury decline suggests that investors are completely abandoning the US market, rather than moving from dangerous assets to safer assets.
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These investors are looking for safe assets to buy. Foreign debt could be an option. Gold is another, but Bitcoin also presents an interesting case. This is especially true as a result of the secondary effects of mass escape from US securities. The US dollar has weakened significantly over the past few weeks.
Since Trump took office in January, the US dollar index has fallen by more than 10%. After the tariffs were announced on April 2, the dollar became quite weak and it couldn’t bounce back after Trump announced a suspension on those tariffs. When the US dollar weakens, Bitcoin pricing is usually higher.
Bitcoin is considered a hedge against inflation. Most economists agree that tariffs will become inflationary.
That just makes sense. An escalating trade war with taxes on all import taxes, from manufacturing equipment to parts and final products, has a major impact on the final price of goods. When combined with the weakening US dollar, we see massive inflationary pressures.
Because Bitcoin has a fixed supply, the dollars that can be purchased less are theoretically applicable to Bitcoin. This means that Bitcoin prices will rise.
However, Bitcoin’s economics does not exist in the vacuum. Three factors outlined here point to Bitcoin, where all fallouts from Trump’s tariffs, are relatively good compared to other cryptocurrencies and other assets in general. The more uncertain the macroeconomic environment remains, the longer the trade war, the more the flow to Bitcoin compared to other cryptocurrencies. So investors may see Bitcoin’s market domination expanding further over the coming months.
Consider this before purchasing inventory with Bitcoin.
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Adam Levy has positions in Bitcoin, Ethereum and XRP. Motley Fool has Bitcoin, Ethereum and XRP positions and is recommended. Motley Fools have a disclosure policy.
Three reasons why Bitcoin can outperform XRP (Ripple) and Ethereum over the next year were originally published by The Motley Fool
