Ripple Should Remain Steady as Its CFO Warns Away Sanction Evaders

Brad Garlinghouse, the co-founder and CEO of Ripple, the parent company to XRP (XRP-USD), recently tweeted about cryptocurrencies. CryptoPotato reported he said Russian users won’t be able to evade sanctions using cryptocurrencies like XRP.

His point is that crypto exchanges and conversions into fiat currencies require facilitators to follow “know your customer” (KYC) and anti-money-laundering (AML) rules. Moreover, even if users are able to bypass regulations, they still need to use banks associated with exchanges to convert their crypto into and out of fiat currency.

He also noted these banks also have to follow KYC and AML regulations. So between these stages of a crypto transaction, there does not need to be any further regulations put on cryptos.

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Why Protecting Ripple is Important

I suspect Garlinghouse wants to protect both Ripple and its XRP coin. He wants to avoid further scrutiny given the perception that cryptos could be used to circumvent sanctions currently in place.

This is important since XRP is the sixth-largest crypto by market capitalization. As of March 14, XRP was trading at 76.63 cents per token and has a market cap of $36.8 billion.

That makes its commitment to not allowing Russian users to bypass other countries’ sanctions very important. Garlinghouse also added this:

“RippleNet, for example, has always been – and remains today – committed to NOT working with sanctioned banks or countries that are restricted counterparties. Ripple and our customers support and enforce OFAC laws and KYC/AML.”

RippleNet is a decentralized global network of banks and payment providers using Ripple’s distributed financial technology. It provides real-time messaging, clearing and settlement of financial transactions. There is also a loose relationship with XRP, which can be used in the RippleNet system.

The point that Garlinghouse is likely making is XRP and other cryptos should not be criticized because some crypto exchanges refused to stop servicing Russia-based users. CryptoPotato reported about this on March 1.

Hillary Clinton was quoted, expressing her disappointment that some crypto exchanges refused to prevent Russian users from operating on their system. She criticized their stated reasons, such as libertarianism leanings, because they could potentially leave an escape hatch for sanctioned users.

Where This Leaves Investors in XRP

Investors in XRP should not worry too much about these developments. It is not likely to face too much blowback. I believe most people trying to bypass the sanctions are going to use Bitcoin (BTC-USD) or Ethereum (ETH-USD). They are the two largest cryptos and have considerably more liquidity than XRP.

As of March 14, Bitcoin has a market capitalization of $738.5 billion and Ethereum has a $305.8 billion market value. These are 20x and 8.5x times the market value of XRP. That shows they have more investors, transactions and liquidity than the crypto. They are also much more likely to be the target of Russian sanction evaders.

Moreover, Garlinghouse feels it is an “outdated and tired” view that criminals can successfully use cryptocurrencies. This is due to the effective implementation of KYC and AML regulations by banks and crypto exchanges.

One thing is for sure so far this year. XRP has not done that badly compared to many other cryptos. As of March 14, it was down just 9.1% year-to-date (YTD). That is a testament to its popularity, durability under stress and especially its use case with RippleNet.

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On the date of publication, Mark Hake did not hold (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.