Not surprisingly, Brad Garlinghouse is bullish on the future of the cryptocurrency business. He's the CEO of Ripple, the crypto exchange whose own digital coin, XRP, is regularly the fourth largest cryptocurrency in the world by market capitalization. According to Garlinghouse, who spoke this week at the virtual Collision conference, digital currencies are here to stay, and regulators ought to be working to make sure the U.S. isn't left out of crypto's global future.
At the same time, Ripple currently finds itself in the cross hairs of regulators. The Securities and Exchange Commission is suing the company for not registering XRP as a securities offering. The agency argues that XRP is actually an investment contract, and not a cryptocurrency like bitcoin and ether. The SEC also has claimed that Garlinghouse and other Ripple executives have made millions in profit from XRP, all the while failing to prove that the digital token has any practical use. The lawsuit has caused the price of XRP to drop significantly (the current price of $1.31 is roughly 60 percent below its 2018 high of $3.31), and many crypto exchanges decided to boot the token from their platforms.
Ripple is fighting the lawsuit with the help of former Obama administration SEC chair Mary Jo White, arguing that the U.S. is one of the only nations that classifies XRP as a securities offering and not cryptocurrency. Garlinghouse argues that the SEC lawsuit, along with the unclear regulatory environment in the U.S., could lead to the nation being left behind in the global crypto market.
"There are a lot of players in the crypto industry who have chosen to set up and domicile outside the United States. And I think one of the worst things that could happen, and I say this as a U.S. citizen and being based here in the United States, is that this isn't good for the crypto industry here domestically," said Garlinghouse.
Here are three takeaways for what's next in the future of crypto from Garlinghouse's interview at Collision.
1. Cross-border payments and global partnerships will be crucial.
Crypto has for years been a popular way for migrant workers to send payments to their families in their home countries without dealing with exorbitant transaction fees. Because of its dispute with the SEC, Ripple lost a partner in MoneyGram, a major payment platform for migrants. It recently bought a 40 percent stake in Malaysian financial services firm Tranglo, which is still awaiting approval from government regulators.
Since the SEC dispute, 100 percent of XRP's customers are located outside the U.S. A large chunk of Ripple's base is now in Southeast Asia, because regulators in Singapore and Thailand classified XRP as a digital asset. Business is also booming in the Middle East and North Africa, as well as Saudi Arabia and India. Garlinghouse pointed out that cross-border payments account for billions of dollars worth of transactions every day.
"Remittances are clearly a very high-friction and expensive payment mechanism, and we're partnering with our customers to make it much more efficient," said Garlinghouse.
2. NFTS are here to stay.
Garlinghouse thinks NFTs, or non-fungible tokens, have more staying power than some believe. He pointed to their many use cases, particularly when it comes to digital collectibles.
"Growing up, I had a baseball card collection, and the ability to trade baseball cards is very high friction. If you're able to issue an NFT associated with every individual baseball card, the traceability of that goes way up. When you talk about art, collectibles, music, there's a lot of use cases here that are very compelling," said Garlinghouse.
He also said XRP is currently working to make sure its platform will be able to support NFTs.
3. Central banks should get involved in crypto.
China, Cambodia, the Bahamas, and others have launched digital currencies through their central banks in recent months. The Federal Reserve is currently working with MIT to explore the feasibility of a digital coin based in the U.S.
Garlinghouse said uptake of digital coins by the world's governments will only help the cause of independent cryptos such as XRP.
"If you think about it, whether or not a central bank [issues] a tokenized digital asset or a currency, you still have the need to have liquidity and settlement between other countries," said Garlinghouse.
He said that if central banks choose digital currency, it would heighten demand for more efficient cross-border transactions. "Today you've got liquidity between 100 different currencies in the world. If you can have that liquidity [with one] that is a bridge between lots of currencies around the world, then [transactions] can be managed much more efficiently," he said.