Ripple CEO: Bitcoin will eventually stop driving the crypto markets

Posted: 31 May 2018 6:00 pm
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Coins need to start solving real problems, not each other's problems, to be valued in their own right.

If you want to know how your coin's going, just look at bitcoin prices. When bitcoin goes up, so do all other digital coins. When bitcoin drops so does everything else.

To date, the cryptocurrency markets have simply tended to swim along as one amorphous blob, with the most distinctive anomalies usually being the result of foul play, accidental failure or deliberate price manipulation. Even as bitcoin's market dominance waned the effect stayed strong.

"There's a very high correlation between the price of XRP [Ripple] and the price of bitcoin, but ultimately these are independent open-sourced technologies," said Ripple CEO Brad Garlinghouse to CNBC.

He attributes it to a simple lack of maturity and experience in the market, and the lack of experience that leaves most people unable to differentiate between the use cases of different coins.

"It's early, over time you'll see a more rational market and behaviors that reflect that... It's still a nascent industry, the speculation in the market dominates the trading activity. I think it's a matter of time until people better understand the different use cases."

A correction

It's only a matter of time until the market develops enough to see different use cases being broadly recognised, Garlinghouse says. This will take the form of a wipeout somewhere down the line, in which the coins which don't actually do anything die off.

"There's gonna be a bit of a correction along the way here where a lot of the players in the space that don't actually solve a real problem are going to get washed out," he said.

It seems inevitable, but it also seems a long way off at this point.

How long will it take?

Currently, most of the coins dominating the cryptocurrency markets are all basically the same, and simply intended to be a new kind of digital money.

Bitcoin, Bitcoin Cash and Litecoin are currently functionally identical, varying only in their transfer times and fees.

Ripple and Stellar Lumens stand out because they have a different marketing twist, touting themselves as direct solutions to the unambiguous awfulness of the SWIFT network. That's a nice way to pretend to be some kind of technical tool for solving a specific problem, while still functionally being yet another type of digital cash.

Their real uniqueness and problem-solving value comes from their network functions, rather than the token itself, which basically just functions as a kind of placeholder for money. There's no reason why a bank can't simply start using any other cryptocurrency for its own international transfers. Some banks already are in fact, bypassing the SWIFT network and Ripple alike with bitcoin.

The washout envisioned by Garlinghouse is probably still a long way off. It's such a novel asset class that people have the inevitable tendency to compare digital currencies to each other, rather than to the legacy systems of the real world.

Most of the most valuable cryptocurrency isn't designed to solve real world problems but designed to solve bitcoin's problems. Litecoin and Bitcoin Cash are solidly in this category. Elsewhere there's another huge subset of cryptocurrency designed to solve Ethereum's problems rather than real world problems. These include EOS, aeternity and basically any other platform which includes the words "scalability" and "smart contract" in its whitepaper. Meanwhile, Stellar was designed to solve Ripple's problems.

These days most coins are still wholeheartedly focused on finding new ways of solving each other's problems and trying to find a way of standing next to the big names. In such an incestuous industry it should be no surprise that bitcoin still dominates everything else.

The first coins to break free of bitcoin's shadow will be the ones that can start convincingly solving real world problems. Then they can start being valued in their own right rather than being valued relative to other coins.

Ripple might be making more progress than most though, by actively engaging regulators to push the entire space forward and finally let coins get their feet on the ground in the real world.

"Bitcoin may end up being the Napster of digital assets," Garlinghouse said. "It's shown what's possible. But Spotify, iTunes, Pandora engaged the system and regulators, and they ruled the day."

They ruled the day by putting themselves in a position to solve real problems for users, not by relentlessly focusing on being slightly better than Napster in various specific ways.

Disclosure: At the time of writing the author holds ETH, IOTA, ICX, VEN, XLM, BTC, NANO

Disclaimer: This information should not be interpreted as an endorsement of cryptocurrency or any specific provider, service or offering. It is not a recommendation to trade. Cryptocurrencies are speculative, complex and involve significant risks – they are highly volatile and sensitive to secondary activity. Performance is unpredictable and past performance is no guarantee of future performance. Consider your own circumstances, and obtain your own advice, before relying on this information. You should also verify the nature of any product or service (including its legal status and relevant regulatory requirements) and consult the relevant Regulators' websites before making any decision. Finder, or the author, may have holdings in the cryptocurrencies discussed.

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