Key Points

• XRP is matching its feature set to what financial institutions need.

• That makes it valuable.

• Other valuable coins are trying to accomplish the same objective.

• 10 stocks we like better than XRP ›

In every era, there are businesses that try to win by providing the goods others rely on, like the companies that sold shovels during the gold rush. XRP (CRYPTO: XRP) is, at least from one perspective, one such business. Its backers at Ripple are working tirelessly to make the XRP Ledger (XRPL) the settlement layer that financial institutions use to move and manage capital on the blockchain.

XRPL can make transactions fast and cheap while implementing strong regulatory compliance controls, so it appeals to banks and currency exchangers, among others. But does that make it the smartest cryptocurrency to buy right now with $1,000, or are there better options?

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XRP's bet is to own the rails that institutions use

The XRP ecosystem aims to make cross-border transaction settlement and asset handling faster, cheaper, and compliant by design so its users can go about their activities on the blockchain without incurring legal headaches.

Transaction costs on the chain start at a fraction of a penny and rise with load to deter spam, keeping payments economical and, on average, very fast. Plus, the ledger's reserve requirement is very low, making it more accessible.

Critically, compliance tools are built into the protocol, so there's no need to implement workarounds or a stack of third-party tools. Asset issuers can restrict or authorize accounts and, where permitted by law, freeze assets to enforce transfer rules, all of which are a familiar set of tools for regulated finance. Ripple is also extending the XRP ecosystem to include its own stablecoin, which will operate on the XRPL and could become core funding and settlement collateral for customers. Financial institutions will be able to access fiat currency equivalents to store their value, and institutional investors will be able to safely keep capital on the chain to deploy whenever they see fit.

Furthermore, regulatory problems are finally in the rearview mirror for Ripple and XRP, which means that investing is less risky now. The Securities and Exchange Commission officially resolved its lawsuit against Ripple on Aug. 22.

The bottom line for XRP is that the upside for the coin is real if institutions standardize on XRPL's rails because they will need to buy and hold some XRP to do pretty much anything on the chain. The trade-off is that there's a substantial amount of execution risk for Ripple with XRP, as many other chains are competing for the same institutional capital, and, over the long run, they might be better at providing the features institutional users are looking for.

But is there a smarter option?

So what should you do with your $1,000? That depends on whether your crypto portfolio is just getting started or is already established.

XRP is a coin worth buying and holding for the long term. But if you don't own any other cryptocurrencies, Bitcoin (CRYPTO: BTC) is a much better choice.

Bitcoin is a store of value that's inherently scarce, and it's a more conservative choice than XRP. It doesn't need to win any competition to continue to be valuable, as its halving mechanic ensures that coins are almost always in short supply, thereby supporting higher prices over time.

On the other hand, if you already hold a fair amount of Bitcoin in your portfolio, it makes more sense to chase some additional growth with a purchase of XRP. Alternatively, if your sole objective is to chase upside in institutional blockchain adoption, allocating a slice to XRP makes sense. Its rails are designed to meet the compliance standards financial institution and banks require, and Ripple's product push is giving the ledger more chances to attract capital.

But be aware that XRP must outcompete other chains to continue to grow. That means it should be treated as a higher-risk, higher-reward play in a broader crypto strategy of which the core should be Bitcoin.