Ripple vs SWIFT: The War Begins
While most criticisms of XRP do nothing to curb my bullish Ripple price forecast, there is one obstacle that nags at my conscience. Its name is SWIFT.
The Society for Worldwide Interbank Financial Telecommunication (SWIFT) is the king of international payments.
It coordinates wire transfers across 11,000 banks in more than 200 countries and territories, meaning that in order for XRP prices to ascend to $10.00, Ripple needs to launch a successful coup. That is, and always has been, an unwritten part of Ripple’s story.
We’ve seen a lot of progress on that score. In the last three years, Ripple wooed more than 100 financial firms onto its network, including such giants as American Express Company (NYSE:AXP) and Moneygram International Inc (NASDAQ:MGI). It held conferences with central bankers and made its case at the World Economic Forum.
Now, SWIFT is acknowledging the threat, while simultaneously playing it down. (Source: “Ripple and Swift slug it out over cross-border payments,” Financial Times, June 5, 2018.)
“It is no secret that correspondent banking is a 1998 model and we are busy addressing that, bringing it to a 2018 model,” says Harry Newman, head of banking at SWIFT. “But in terms of speed, what problems are you trying to fix? We have our own cloud and API solutions and are already doing payments in minutes or even seconds.”
You often hear these arguments from SWIFT. It insists that it’s easy to catch up with new technologies, when in fact it’s extremely hard to impose fundamental, bottom-up changes on an existing network.
Ripple CEO Brad Garlinghouse fired back at SWIFT, saying it’s essentially “putting a Ferrari shell on a Model-T engine.”
“It’s a cosmetic upgrade on old infrastructure,” he added. (Source: “Twitter post,” @bgarlinghouse, June 6, 2018.)
A Tense Compromise with the SEC
After months of back-and-forth, blockchain startups and regulators—like the U.S. Securities & Exchange Commission (SEC) and the Commodity Futures Trading Commission (CFTC)—appear to have arrived at a compromise over the role initial coin offerings (ICOs) and tokens.
The news isn’t official, but I’ve noticed a seemingly coordinated response on both sides of negotiations. For example, SEC Chairman Jay Clayton said anyone wanting to do a “public offering” needs to seek permission first, since any token promising a return might be classified as a security.
“If you have an ICO or a stock, and you want to sell it in a private placement, follow the private placement rules,” he said on CNBC. “If you want to do any IPO with a token, come see us.” (Source: “SEC chief says agency won’t change securities laws to cater to cryptocurrencies,” CNBC, June 6, 2018.)
That was the first sign.
Then, within 24 hours of this statement, Coinbase announced that it’s been trying to become a federally regulated broker-dealer. (Source: “Our path to listing SEC-regulated crypto securities,” The Coinbase Blog, June 6, 2018.)
Coincidence? I think not.
Coinbase is the most respected cryptocurrency exchange in the United States. It is also the most careful. Only four cryptos are listed on the exchange, specifically because Coinbase does everything within its power to avoid a kerfuffle with the SEC.
So how can we interpret its newfound desire to become a securities broker-dealer?
Simple: It knows something we don’t—namely, that the SEC probably won’t abandon its “tokens are securities” position. Once you put that together with Clayton’s remarks, it becomes clear what the future of cryptocurrencies looks like: A free-standing market whose entrances are staunchly guarded by the SEC and CFTC.
Side Note: These announcements also telegraph Coinbase’s expansion plans. Becoming a broker-dealer would make it compliance-ready and complement its emerging suite of institutional products, including “Coinbase Custody” and “Coinbase Pro.” (Source: “Announcing the Coinbase Suite of Institutional Products,” The Coinbase Blog, May 15, 2018.)
I think the company believes there’s enough space for one exchange to become the NYSE of crypto, and it’s currently Coinbase’s game to lose. Here’s a telling quote from Coinbase President and COO Asiff Hirji.
“We believe this is an important moment for the crypto ecosystem, and yet another indication of the maturation of the crypto economy. If approved, these licenses will set Coinbase on a path to offer future services that include crypto securities trading, margin and over-the-counter (OTC) trading, and new market data products.” (Source: “Our path to listing SEC-regulated crypto securities,” The Coinbase Blog, June 6, 2018.)
Some Additional Thoughts
One of my worries about cryptocurrencies is that they move at lightning speed. In fact, they move so quickly that everything prior to last week becomes a hazy blur. We forget the big trends, broad narratives, long arcs—choose your metaphor.
We forget, for example, why cryptocurrency prices crashed in the first quarter of 2018.
I frequently check online forums and Reddit threads to gauge popular opinion, and it seems like some people think cryptos were always doomed. Others think the price is being manipulated.
Both are wrong. (Although the SEC is looking into claims of manipulation, there’s no concrete evidence right now.)
I know this because I covered cryptocurrencies on a daily basis. I have the luxury of archived articles, and based on my look back, the starting point was South Korea’s bearish stance on crypto regulation. From that point onward, regulatory news took the wheel.
Now that the fog of uncertainty is starting to lift, we should see a recovery in crypto prices.
However, I can tell you from experience that the market does not absorb positive information as quickly it does negative information. Give it time. My guess is that we’ll see crypto prices back at pre-crash levels by the end of Q3.
Analyst Take
All companies die. It’s a sad truth that SWIFT will have to learn one day, probably as Ripple usurps its position in the international payments game.
While that possibility creates enormous upside potential for XRP prices, none of it can come to fruition until the market recognizes that regulatory uncertainty is not where it was five months ago.
I still believe our Ripple price forecast of $2.00 is within reach for Q3, however, the $10.00 benchmark might only be crossed in 2019.
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