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Crypto Regulations: A Paper Tiger for XRP



I blog about Ripple & XRP. FULL DISCLOSURE: All views are my own. I do not work for Ripple; I am not a professional financial analyst, and the majority of my crypto holdings are XRP.

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Are we ready now?

That strange hesitation that seemed to grip crypto prior to receiving guidance from various governments about ICOs and digital assets has now seemed to wane at the tiger_cubcompletion of the second week of February.  A series of government proclamations, rulings, and hearings now forms what one could (arguably) call “market guidance.”

Was the market waiting for the thumbs-up from regulators and governments prior to seeking out new all-time highs for its favorite crypto choices?  Perhaps.

The crypto market is fickle.  I’ve heard many stories about new investors disappointingly buying what they thought was a great investment only to be rewarded with double-digit losses until this point.  It’s not the kind of welcome that new investors to the crypto market needed; while we love to see new investors enter the market, it’s not good publicity when their first experience is to lose over fifty percent of their portfolio’s value.

Crypto took some hits over the last month, and the entire market capitalization of cryptocurrency has yet to recover to its previous levels.  One of the market depressors has been the fear of unexpected government regulation.  In addition to giving new investors the jitters, regulation has the potential to disrupt existing flows of investment.

But if we truly examine recent government hearings, pronouncements and regulations, is it really all that bad?

History of Crypto Market & Regulation

If we look at what current policies and procedures that the government requires of crypto exchanges, it’s fairly common sense.  The government requires the same thing of centralized crypto exchanges that they require for any money transmitter: That they institute and follow procedures for Know Your Customer (KYC) and anti-money-laundering (AML). crypto_regulation

This inevitably resulted in the process with which we’re all familiar at this point: When you apply for an account at a crypto exchange, they require additional information to determine your identity.  I don’t consider this a big deal, and it’s a standard expectation when opening an account.  But that’s not the way that the crypto market approaches any news of regulation.

The crypto market has a history of overreacting to any hint of new legislation, or even a rumor that a government is planning on implementing policy changes.

You can see this with the reaction of the market to the US SEC issuing a warning to consumers about Initial Coin Offerings (ICOs) in July of 2017. 1 It was a simple warning, and common-sense; that any ICO that seemed to be offering shares in a venture should be treated as a securities offering, not as the creation of a new crypto network.  In addition, any ICO that was planned as a means to access capital for a new enterprise or investment would be viewed as a securities offering from the standpoint of the US SEC as well. 2

How Did the Market React to the SEC Warning?

The simplest method of analyzing the market reaction is to look at the historical crypto charts on Coinmarketcap.com and determine if the overall market increased or decreased in value based on the guidance from the SEC.  Another way to analyze it is to look at the value that the overall market ascribed to the Ethereum network before and after this point, as Ethereum is the crypto network that contains the most ICO tokens. 3 4
  • Overall Market Capitalization Before SEC Announcement:  $95.9 billion
  • Overall Market Capitalization After SEC Announcement:  $88.6 billion
  • Price of Ethereum Before SEC Announcement:  $226
  • Price of Ethereum After SEC Announcement: $201
This is anecdotal data at best, but it does illustrate that the overall market places importance on official governmental pronouncements, even if they don't affect the technology or market directly.

China Regulation

Closely on the heels of the SEC announcement, one month later China took an even stronger stance against ICOs.  China decided to look at ICOs first, and that was no surprise given the fact that the US SEC seemed to focus in on the ICO as a ‘point of order’.

The following is the chronology of China’s view towards ICOs and the trading of its fiat currency for virtual currency:

China Announcements TimelineChineseFlag

  • Monday, September 4rth – China bans ICOs 5
  • Sunday, September 10th – First reports of Chinese ban on crypto trading 6
  • Monday, September 11th – Clarification confirmed that OTC trades will continue 7
Here we have almost a textbook example of “worst case scenario” for a government reaction.  It was also announced piecemeal, extending the negative market reaction to each bit of news.  But what the end result shook out to be resembled a situation that surprised nobody; China was not going to allow its own fiat currency to be exchanged in large quantities for virtual currency.

It wasn’t this decision that surprised me, quite honestly; it was the fact that China had allowed the Renminbi to be traded for years before doing something about it.

The market reaction to the Chinese news was basically a rolling stagnation.  Because the news about China’s regulations was announced piecemeal, the market did a stutter-step backwards, but didn’t outright crash – it actually exhibited a bit of resiliency, probably in recognition that most of the international volume came from other countries in Asia .... such as South Korea.

South Korea

A very large proportion of current crypto volume originates in South Korea.  For XRP, that percentage is sometimes as high as forty percent or more depending on the day. 8   Likewise, Bitcoin and Ethereum prices have benefited substantially from the South Korean crypto phenomenon. SouthKoreanFlag

Because of this heavily-weighted importance on South Korea, the entire crypto market became nervous when rumors of potential new regulations started to emerge.

However, when the smoke cleared the new regulations were, if anything, viewed as common-sense measures that would do very little to obstruct the unbridled growth of the crypto market.  Here is the end result of these measures: 9 10 11

  • Exchange tax implemented on exchanges
  • Ban on foreigners opening new cryptocurrency accounts
  • Ban on minors opening new cryptocurrency accounts
  • All exchanges must tighten KYC and AML procedures
Similar to the US SEC warning and China’s eventual crypto restrictions, I can’t say that any of these formalized policies was a surprise.  After the initial head-shake, the crypto market rebounded and continued on its journey.  At least until we’d heard that India was taking a closer look at cryptocurrency.


Unlike South Korea, India doesn’t constitute a large percentage of the global volume for crypto exchanges and purchases; but it’s growing and has the potential to reach a much larger audience than most countries due solely to the population of the country's “able to buy crypto” demographic.  India is a country of 1.3 billion people, and roughly sixty-four percent of that number belong to the ‘working age’ between 16 and 64 years old. 12

That translates to 830 million potential crypto investors.Flag_India

India’s Finance Minister – Arun Jaitley – gave a speech with some tough language in it on Thursday, February 1st.  Here is one of his quotes: 13

“Distributed ledger system or the block chain technology allows organization of any chain of records or transactions without the need of intermediaries. The Government does not consider crypto-currencies legal tender or coin and will take all measures to eliminate use of these crypto-assets in financing illegitimate activities or as part of the payment system.”
While I was initially hung up on the phrase “eliminate use of these crypto-assets … as part of the payment system,” I’ve been informed that the context was everything, and that India will most likely be heading in a direction of moderate policies towards cryptocurrency.  In fact, despite the fact that his hard-line comments were publicized, here is a sample of his less-harsh analysis:
“The government will explore use of blockchain technology proactively for ushering in the digital economy”
That sounds a lot more enthusiastic, and he’s clearly differentiating between the ‘privacy cryptocurrencies’ that could be used for money laundering, and that of the overall technology.  Another source for cryptocurrency policy comments was Subhash Chandra Garg, India’s Secretary for the Department of Economic Affairs, who had this to say:
“The expression now that we are using right now is crypto asset. We don't like the word currency. Nobody has the authority to issue currency or coins. So, these are misnomers, wrong expressions. We prepared to treat them as crypto assets. Once we recognize that these are assets and not allowed as currency or coins, then if it is used in making payments of illegal activities, is our next line of worry. We will do everything to see that the use of crypto assets into these kind of activities are eliminated."
Again, just like our brief history of China, the US, and South Korea, each of these comments can be viewed as common-sense policies and statements of position.  The crypto market, while initially taking a step backwards during these announcements, eventually bounced back once the collective understanding was updated to reflect these moderate policies.

Latest News

There have been a number of recent developments with regards to governments and banking organizations providing their perspective on blockchain technology.  While the market may not react positively to much in the way of regulation, obtaining more viewpoints around this new technology provides a frame of reference to determine a future trend or market direction.

US Senate Banking Committee

The US Senate held a hearing on cryptocurrency on February 6th, with both the head of the Securities and Exchange Commission (SEC) and the Commodity Futures Trading

SEC Chairman Jay Clayton SEC Chairman Jay Clayton

Commission (CFTC) giving testimony.  In that hearing, the head of the SEC – Jay Clayton – gave testimony that indicated ICOs would be viewed as securities in the United States. 14 15

This stance wasn’t surprising to those of us in the United States; the SEC had provided warnings previously about ICOs, so hearing their position on ICOs was not surprising.  The SEC and CFTC’s view on cryptocurrencies was much more moderate, with Chairman Giancarlo actually extolling the virtues of how blockchain technology could benefit his agency with trading data for analysis.

House Committee on Science, Space & Technology

Eight days later, the Senate committee hearing was followed by a House Committee on Science, Space & Technology that discussed blockchain technology with a panel of five experts.  These experts represented academics and industry stakeholders.  While not focused on the regulation of blockchain technology, the House Committee hearing talked MrWrightabout the benefits that blockchain technology could bring to the government: The group talked about inventory tracking, a possible benefit to responding to food-borne illness outbreaks, and also its use in combination with voting. 16 17

The tone of the hearing was positive.

Some of the House members asked questions about the security of blockchain, and its potential vulnerability to bad actors, and some had concerns about quantum computing as well.  The panel members were able to field these questions and indicated that cryptography would be responding soon with a new set of algorithms that were quantum-proof or resistant.

Another Central Bank Signs with Ripple

Governments and legislatures may be caught a bit flat-footed regarding blockchain technology; those central banks that have already been experimenting with these new tools are ready to make further investments.  On January 26th at the Blockchain Connect Conference in San Francisco, Brad Garlinghouse announced that the Saudi Arabian Monetary Authority (SAMA) was a client. 18 19

When central banks are already signing up to use blockchain technology, that means that any legislative hearings should be regarded as more of a reaction to momentum already displayed in the market rather than a proactive move to truly understand a new technology.

Malaysia Central Bank Says “Let the Public Decide”

The central bank of Malaysia – Bank Negara – is planning on releasing a statement that leaves the fate of cryptocurrencies up to its citizens instead of imposing any restrictions on them. The move is a wise statement to make, especially given the inability of most central bank executives to grasp the true nature of some of the underlying cryptographic technology.  Letting the market decide which technologies are the most dependable over time has been a method that's been used by many organizations when it comes to cutting-edge technology, especially for risk-averse governmental organizations.

If this stance sounds familiar to you, then perhaps you're remembering the Federal Reserve Task Force recommendation for faster payments.

Federal Reserve Faster Payments Task Force Recommendation

Ripple was one of many companies to submit proposals to the Federal Reserve’s Faster Payments Task Force.  The task force accepted, read, reviewed and ranked proposals from many different sources.  As its conclusion, the Faster Payments Task Force conducted a video review or summary of its findings, and then indicated that they would not be picking a winner. 20

Instead, what was their decision?  Let the market decide.

Governments are Standing Aside

This approach – letting the market decide – is not new, but it is unexpected when it comes to cryptocurrencies.

When I first learned about cryptocurrencies, I thought for certain that governments would eventually view cryptocurrencies as a threat to their sovereign right to print fiat money.  After all, if their citizens had a choice between fiat money that could be easily printed, and virtual currency that was cryptographically represented by a limited number of tokens, it’s a no-brainer.  The citizens will choose the cryptocurrency.

Not everybody sees this like I do, thankfully!

While I’m still skeptical of why governments are not collaborating to stop cryptocurrencies, that’s doesn’t stop me from analyzing the result.  If the governments of the world are striking a moderate tone, it must be in an effort to be “crypto-friendly.”  This I understand; when countries compete for business, they have to appear amenable to the technology or industry that they’re trying to attract; and nobody wants to be responsible for a brain drain in their own country.

A brain drain happens when the opportunities abroad become more attractive than the opportunities in your own country.  There are variations on the theme, of course; in the case of blockchain, the SEC opinion about ICOs being equated to securities only guarantees one thing; that ICOs will be more prevalent in other countries.  The SEC stance doesn’t stop ICOs from being unregulated – it only serves to move them to countries that are more friendly or unregulated than the US.

It’s the nature of blockchain.  Blockchain technology doesn't concern itself with borders of countries, and it doesn't need to.  Now it’s apparent that some people in government understand this international nature, while others do not.

What Does It Mean For XRP?

This is the outcome - moderation - that we were hoping for when it comes to legislation.

While regulations worldwide around ICOs were expected, it’s refreshing to see that no country in the world has yet banned the use of cryptocurrency.  It validates that, at least in early 2018, the climate of innovation is still quite strong when it comes to crypto markets.  A ban would have been a setback; but the current ‘wait-and-see’ stance of governments is going to be a catalyst for further growth.

No Obstruction to Banking Use of Digital Assets

The obvious and immediate impact for Ripple is one of good news; there is nothing in terms of legislation that inhibits the use of XRP in banking.

Whether it’s serving as a bridge currency, linking to regulated exchanges to source liquidity using XRP, or just the buying and selling of XRP, it doesn’t look like any policies or rules put in place by any country are going to obstruct the adoption of Ripple’s digital asset for use as a bridge currency.  Even if a rule or procedure had been established as an obstacle, it would not have been the end of the story: Ripple has shown a willingness to forge a path through uncertain times and circumstances by blazing a trail of its own.  It’s refreshing that they can skip over dealing with unclear regulations.

Additional Worldwide Exchanges – For XRP and All Crypto

What can you expect to see as a result of this laissez faire trend among the worlds’ nations with regards to cryptocurrency?

world_commerceThere will be a surge in the number of worldwide exchanges that support trading of cryptocurrency.  While we’re already dealing with well over a hundred worldwide exchanges, expect that number to climb even higher before it plateaus.  There is money to be made in hosting an exchange, and I foresee many different banks, businesses, and other groups that will want to establish their own market for the purpose of charging their own fees or offering specialized services.

The Crypto Market Will Break One Trillion – Or Even More

Currently, the crypto market stands at approximately $500 billion, give or take.

This will more than double in 2018, easily breaking the one trillion dollar mark.  It will be a milestone for crypto, but one that will be considered an insignificant way-point along the overall journey as I predict that the crypto markets will break the two trillion dollar mark before 2018 ends.  This is a direct result of the more open policies that the world is supporting.  This moderation of regulation and policy will result in fast growth as 2018 wears on.

Get Ready For A Supercharged XRP

I’m confident enough to make the prediction that 2018 is going to be the “year of crypto” that makes people forget about 2017.  While 2017 was the year that ordinary people might have learned about cryptocurrency, 2018 will be the year when mainstream investment happens in a big way.  The hints that we’ve seen in regards to the massive demand for crypto are only the warning quakes for what’s about to occur.

Each of us has heard the rumblings from others – four week waits at the more popular crypto exchanges.  The fact that “that annoying guy” in the corner office is now talking about Bitcoin.  Who doesn’t own a t-shirt with an XRP logo on it at this point?  I have three and counting, with more swag on the way.  I’ll be able to dress up in XRP 24 X 7 at this point.  And in my hand?  An XRP coffee mug.  Our guerrilla marketing campaigns are paying off in a big way it looks like, and the overall market has seen the effects of this increased level of mainstream investment.

Word has started to get around.

The list of good news for Ripple & XRP has been nonstop, and with xRapid’s imminent adoption, XRP is poised to break out into phenomenal returns throughout 2018.  Whether it’s the remittance companies like American Express, Western Union, MoneyGram, or the smaller innovators, XRP is taking over international payments.  Soon banks will be taking advantage of the cost savings that xRapid has to offer.  In addition, we now see Ripple starting to consider other lucrative markets for XRP such as micropayments and Internet companies with an international presence.

Some of these Ripple investments and collaborations will bear fruit in 2018 like a carefully-manicured apple tree; if you’re a long-term investor, the time to start accumulating XRP is now.ripple-symbol3


  1. https://www.sec.gov/oiea/investor-alerts-and-bulletins/ib_coinofferings
  2. https://www.skadden.com/insights/publications/2017/08/secissuesguidanceonregof-initialcoinofferings
  3. https://coinmarketcap.com/historical/20170730/
  4. https://coinmarketcap.com/historical/20170723/
  5. https://www.bloomberg.com/news/articles/2017-09-11/china-is-said-to-ban-bitcoin-exchanges-while-allowing-otc-trades-j7fofh20
  6. http://fortune.com/2017/09/11/china-bitcoin-exchange-ban-otc-trading/
  7. http://fortune.com/2017/07/26/sec-icos/
  8. https://ripple.com/insights/q4-2017-xrp-markets-report/
  9. https://cointelegraph.com/explained/south-korea-and-crypto-regulations-explained
  10. https://www.coindesk.com/korean-exchange-halts-crypto-trading-kyc-mandate/
  11. https://cointelegraph.com/news/south-korea-officially-legalizes-bitcoin-huge-market-for-traders
  12. https://en.wikipedia.org/wiki/India
  13. https://techcrunch.com/2018/02/03/psa-no-india-hasnt-banned-bitcoin-but-its-still-talking-tough-on-crypto/
  14. https://techcrunch.com/2018/02/06/virtual-currencies-oversight-hearing-sec-cftc-bitcoin/
  15. https://finance.yahoo.com/news/sec-chair-written-testimony-hints-182006551.html
  16. https://youtu.be/VptsprY6qPI
  17. https://www.coindesk.com/expect-congress-talks-blockchain-tomorrow/
  18. http://www.sohu.com/a/220864864_257855
  19. http://www.maaal.com/archives/20180210/103099
  20. https://www.youtube.com/watch?v=dswepaTUcrQ&feature=youtu.be

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I blog about Ripple & XRP. FULL DISCLOSURE: All views are my own. I do not work for Ripple; I am not a professional financial analyst, and the majority of my crypto holdings are XRP.

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