Technological progress is often met with resistance. Unfortunately, this obstruction can create a self-fulfilling prophecy where innovation is stifled and competition restrained - all because of the knee jerk objections from skeptics, incumbents or the uninformed.
This is where we are with crypto today. We have passed the inflection point—people have different views on it, but no one can deny the public interest in and growing usage of these new technologies. But with 2022 being touted as the year of crypto regulations, the industry’s future—and America's role in it—are on the line. Will Congress and regulators collaborate with the industry on a rational regulatory framework that protects consumers and markets? Or will the industry continue to be forced to grapple with regulatory ambiguity and inconsistent enforcement?
First, it's important to consider the tremendous growth of cryptocurrencies and digital assets over the past several years. Ripple was founded in 2012 with the goal of using blockchain technology and cryptocurrency to dramatically improve the speed, cost, transparency, and reliability of cross-border payments around the world.
Blockchain technologies are transforming the way we exchange value and information. The cryptocurrency market roughly quadrupled in 2021, and a majority of chief financial officers surveyed by CNBC agree digital assets are 'for real.' Newsweek reports about 46 million Americans now own cryptocurrency. CoinDesk explores how an increasing number of people of color are participating in crypto after finding themselves locked out of traditional finance.
Second, is the misguided litigation initiated by the SEC against Ripple in December 2020. Since the SEC's unfounded suit against Ripple was filed, it has become increasingly clear—as we said from the very beginning—that the case is a haphazard attempt to regulate the cryptocurrency and blockchain industry as a whole. The lawsuit against Ripple won't be the last—SEC Chair Gensler has warned of increased enforcement actions against the industry. Ill-conceived, ad hoc litigation instead of orderly rulemaking, hobbles the entire digital asset ecosystem.
If there's one lesson of this litigation for the entire cryptocurrency industry and users, it's that regulation by enforcement doesn't provide the regulatory clarity needed by innovators and consumers. Unfortunately, in an effort to advance its own jurisdiction, the SEC seems to prefer what one current Commissioner described as pursuing an agenda of "strategic ambiguity." The industry is not asking to be free of regulation. Rather, the industry is clamoring for clear rules of the road to foster innovation and growth around these technologies. Thoughtful regulation, consistently applied, leads to predictable results. SEC Chair Gensler says today's cryptocurrency market is like a football field with no ref. To the contrary, the SEC has created an unlevel playing field where they get to pick winners and losers according to an ambiguous set of rules they make up as they go along.
The reality is that economic competitors around the world are moving quickly to use and implement digital assets, blockchain-enabled real-time payments, and central bank digital currencies (CBDCs). Blockchain technology is advancing with or without cooperation from U.S. regulators, and it will be the American public who get left behind if the government cannot keep up. As a proud American company, it is discouraging to see talent and businesses (and tax dollars) leave the U.S. due to this uncertain and unwelcoming environment. Major industry players, such as FTX and Crypto.com are headquartered outside of the U.S., which is materially hurting the U.S.' leadership and innovative potential by causing a crypto "brain drain."
Developing a regulatory framework for cryptocurrencies and digital assets will not be a simple exercise. But threatening innovators with suits at every turn will have tragic consequences for the benefits and economic growth that digital assets and blockchains have the potential to unlock. Fortunately, there are existing legislative proposals from members on both sides of the political aisle to modernize facets of the current financial services oversight structure to create a framework tailored for crypto. I deeply believe in this approach—and that is the reason Ripple laid out a framework designed to offer an immediate and pragmatic way forward which accounts for the dynamism of digital assets.
I hope policymakers reassess their approach to regulating crypto before the damage is past a point of no return. Ripple—and the rest of the industry—will continue innovating. Congress and regulators must work together to provide regulatory clarity to the crypto industry. Otherwise, 2023 could mark the first year of a country other than the U.S. leading the digital asset revolution.
