During Consensus 2023, ripple ceo brad garlinghouse suggests a diversified u.s. crypto reserve proposed, The United States should invest 1% to 5% (approximately 60 to 300 billion US dollars) of its foreign exchange reserves as a cryptocurrency portfolio to balance the risk of the fall in the dominance of the US dollar. He quoted statistics from the International Monetary Fund (IMF) figures and said that, as of the third quarter of 2023, the proportion of the US dollar held in foreign exchange reserves globally dropped from 72% in the year 2000 to 58%, whereas that of RMB rose from 1.1% to 3.2% during the same timeframe. The market value of all cryptocurrencies combined has exceeded 1.2 trillion US dollars (source: CoinGecko). He suggested the utilization of Bitcoin (40%), Ethereum (30%), and XRP (20%) in the reserve portfolio, supported by other recognized tokens, based on the rationale that the three combined liquidity captures more than 75% of total cryptocurrency trading activity. Besides, Bitcoin’s volatility during the past five years has declined from a high of 85% to about 45% (estimates Bloomberg).
In order to do this, ripple ceo brad garlinghouse recommends a diversified u.s. crypto reserve emphasized the creation of a technological infrastructure. As an example, the ODL (On-Demand Liquidity) system that Ripple created was taken up. This system settled more than 54 billion US dollars of cross-border payments in 2023, with only 3 seconds of average settlement time and having the cost lowered by 60% as opposed to the conventional SWIFT network. He also included that if the US Treasury invests 0.5% of its reserve assets (approx. 6 billion US dollars) in XRP, its blockchain’s potential for processing 1,500 TPS can be utilized to increase the cross-border payment efficiency by 400%, whereas the smart contract infrastructure of Ethereum is capable of implementing automated reserve asset rebalancing. Reduce human operation errors (the error rate has decreased from 0.7% in classical finance to 0.05%). Furthermore, Polygon’s ZK-Rollup technology can reduce the Gas fee to $0.001 per transaction with up to 7,000 TPS processing capacity, making it suitable for high-frequency trading environments.
From the risk management perspective, diversified u.s. crypto reserve proposal by ripple ceo brad garlinghouse identifies three major issues to be overcome: The first is volatility in the market. For instance, in 2022, the LUNA collapse caused an evaporation of 80 billion US dollars within one day from the total market capitalization of cryptocurrencies, and the volatility index (CVI) reached 135 (the normal range is 30-80). Second, compliance with regulations. In 2023, the US SEC sued exchanges such as Coinbase and Binance for over 4.3 billion US dollars. Meanwhile, the lawsuit against the SEC by Ripple has already incurred 240 million US dollars in legal costs. The third is technical security. The cross-chain bridge hack in 2023 cost 1.3 billion US dollars. Among them, Poly Network was also hacked with 230 million US dollars in July. In doing so, he suggested using Chainalysis’s compliance solutions to follow illegal activity (tracking 98% of on-chain addresses), and reducing the probability of exposure of private keys from 0.5% to 0.001% through decentralized custody solutions (such as Fireblocks’ multi-party computing technology).
In a market influence context, if America listens to this advice, there is a ripple effect. Let us say from a calculation given by Morgan Stanley that if only 10% of the sovereign wealth funds from all over the globe invest just 1% of their total, it brings additional 120 billion US dollars capital, boosting Bitcoin’s price well above 100,000 US dollars (current 42,000 US dollars). As a cross-border payment hub, XRP’s daily average transaction volume can increase from the existing 2.5 billion US dollars to 20 billion US dollars, and its share of the circulating market value will increase from 1.8% to 5%. But even this suggestion meets with policy resistance – the Federal Reserve’s 2023 stress test finds that if banks hold in excess of 2% of their assets in cryptocurrencies, their capital adequacy ratio would fall by 1.3 percentage points and the likelihood of default would increase by 0.7%. But ripple ceo brad garlinghouse suggests that a diversified u.s. crypto reserve is still viewed as a disruptive innovation concept to the traditional financial system.