This article was originally published in Chain News, author James Chiu
As a new crypto unicorn, FTX has been involved in many crypto fields. In addition to exchange business, it also includes DeFi, payment, and even plans a carbon neutral strategy. The content of this interview includes the volatility of cryptocurrency prices, the potential of the crypto industry, regulatory supervision, ESG and carbon neutrality, the future of Bitcoin, and institutional trends.
High price volatility is a process of building consensus
The price volatility of Bitcoin (or cryptocurrency) has always been criticized.
The PayPal CFO stated in May that due to its high price volatility, PayPal will temporarily not allocate cryptocurrencies in its assets; the world’s largest investment bank Goldman Sachs (Goldman Sachs) reported last month that Bitcoin’s high volatility makes it not Suitable as a “long-term store of value” or “investable category”.
SBF pointed out that the pricing of any financial asset relies on market consensus, and high price volatility is a characteristic of emerging assets. However, as assets gradually mature, the market will gradually form a consensus, so high volatility will not change until the market defines cryptocurrencies.
“In Q1 this year, the price of crypto assets has risen sharply. Many people think this is caused by the entry of large financial institutions into the ecosystem. In fact, after talking with many large financial institutions, even if they do not know how to explore, they all Said that he wants to participate in the encryption industry in some form.”
SBF stated that if you just want to trade stably on the blockchain, you can choose stable coins, but if you want to invest in assets that store value, then you cannot require these assets to be “very stable”, because that violates the market’s effective hypothesis.
There is no consensus on the price, but there may be directions for exploration
SBF went on to say that the potential of cryptocurrency and blockchain may be reflected in the application of payments (especially international transfers) and smart contracts.
Indeed, in the past year, we can see that many industries and institutions have begun to accept Bitcoin (or cryptocurrency) as payment, including electric car giant Tesla (now rejected), real estate leader Caruso accepting Bitcoin as rent, and major league movements. Home team, NBA Lone Ranger team.
The real change may be that payment giants start to join. PayPal opened cryptocurrency payments in Q1 this year, and more than 29 million merchants on the platform can accept cryptocurrencies. Subsequently, VISA announced in March this year that Bitcoin would be included in its payment landscape. Mastercard believes that CBDC is the future, but even so, they are also cooperating with the Gemini Exchange to launch crypto financial cards.
PayPal CEO Dan Schulman (Dan Schulman) stated in the Q1 earnings conference that opening up cryptocurrency payments and transactions is the company’s most critical growth driver. Among the users of cryptocurrency functions, more than 50% open the PayPal application every day, and user stickiness has increased significantly. Paypal’s net revenue for the quarter was US$6.03 billion, a year-on-year increase of 31%.
On the other hand, the exchange has also begun to launch its own payment system. Binance announced earlier that Binance Pay has launched a beta version, and merchants can accept more than 30 cryptocurrencies. FTX also announced the launch of “FTX Pay” in May, providing an external tool program for merchants to embed the program in the website to achieve “one-click payment”.
“For many people, electronic remittances can easily seem a bit self-deceiving. When talking about cross-border (regime) payments, it usually takes several days. The renewal fee may be hundreds of dollars, and many online transfers do not support cross-border payments at all. Remittances must be transferred in person to the bank.”
SBF believes that crypto payment may be a better “value transfer method.” Over time, the cross-border payment system and peripheral services will become more complete.
Another potential exploration target is “smart contracts.” SBF said that the concept of executing smart contracts on the blockchain and letting the programming language automatically execute commands, arbitrate, and complete instant delivery and liquidation is pretty cool.
Interestingly, although many people think that blockchain applications, such as DeFi, are very speculative, the lock-up volume (TVL) of DeFi has not decreased much since the price drop in May.
According to the Arca Encryption Fund’s report, although the prices of many DeFi protocol native tokens are falling, TVL (total lock-up volume) is actually increasing. For example, the price of AAVE tokens fell by 60%, but TVL hit a record high. Yearn Finance token YFI fell by 50%, but Q2 compared with Q1, earnings increased four times.
On the whole, after a sharp fall in May, the TVL of the DeFi protocol remains high-end, and the number of infrastructure users has not decreased. In fact, May is the month with the highest DEX trading volume ever.
Regulations in various countries are clarifying the “crypto market regulatory framework”
The Chinese government has recently strengthened its supervision, including Mongolia, Xinjiang, Qinghai, Yunnan, and Sichuan provinces that have issued mining bans, and the Inner Mongolia Autonomous Region has even included miners on the social credit blacklist. In addition, they interviewed major banks in China to implement anti-cryptocurrency operations and prohibit them from providing related services.
SBF believes that this supervision can be divided into two directions: one is to combat leveraged trading, and the other is to combat mining.
It should be noted that the focus of the Chinese government’s crackdown is not on cryptocurrencies or Crypto assets itself, but on exchanges and bitcoin miners that provide leverage (crypto derivatives), which is very different from China’s monetary tightening policy. relationship.
In the past year, the extremely loose monetary policies of central banks have led to the appreciation of the renminbi exchange rate, the rise in the stock market, and the increase in housing prices. The speculation has also increased the private financing rate. According to this situation, once the Fed shrinks its balance sheet and raises interest rates, the ebb of funds will make China The economy is in trouble. So starting from Q2, China began to implement a series of measures, including the reduction of M2 money supply, the inclusion of Ant Financial (a private financing channel) into supervision, and of course the crackdown on the encryption industry.
SBF said that global governments are clarifying their regulatory attitudes towards the encryption industry, and this is a process. As cryptocurrency gradually enters the mainstream, governments of various countries are trying to tell everyone their attitudes and regulatory requirements towards cryptocurrencies. For the exchange, it is necessary to clarify the future direction of each country.
He emphasized that, fortunately, FTX is an international exchange, and no one continent accounted for more than 10% of total revenue; but for exchanges that put their business in a single market, this period of time may be painful. period.
Another focus of regulation is the energy issue of mining.
Create a “green” encryption industry
Since 2021, the energy problems of Bitcoin and cryptocurrencies have begun to surface. SBF believes that although many people use network security as a shield against energy consumption, considering the “transaction volume” on the Bitcoin network, the energy consumed by Bitcoin transactions is not in the same order as other payment networks, so energy issues It must be a problem facing the encryption industry.
Fortunately, many competing public chains have adopted Proof of Stake Consensus (PoS), and Ethereum will gradually switch from Proof of Work (PoW) to PoS this year. But the Internet is not the only place with energy problems. SBF said that with the gradual expansion of the encryption industry, encryption companies must gradually become greener, whether it is to speak out on environmental issues, and to achieve carbon neutrality as much as possible.
SBF has previously provided a set of “Carbon Neutral Mathematical Formula”. Simply put, if you spend a US$1 fee on blockchain transactions, you donate US$0.0026 to Cool Watch, which will achieve carbon neutrality. And, and this formula has been first used by BitMEX exchange.
“We need to eliminate the impact on the environment as much as possible, whether it is talking about the ban on deforestation, achieving net zero emissions, or other methods. It is reasonable to make the encryption industry green in the future economic trends. Facts. FTX has promised to at least first achieve carbon neutrality by compensating Cool Watch.”
In fact, it is not just FTX and BitMEX. One River Asset Management, which has an asset management scale of 2.5 billion US dollars, has submitted an application for a carbon neutral bitcoin ETF to the US SEC to offset the bitcoin assets in the fund by purchasing carbon rights. The relevant carbon footprint of the new ETF will also adopt the same approach.
The future of Bitcoin: becoming a reserve asset and trading on Layer 2
What about Bitcoin’s energy problem?
The Bitcoin Mining Council (BMC), jointly established by North American miners, previously announced the results of a survey that stated that more than 20% of the entire network’s computing power uses renewable energy, and it is estimated that Q2 will reach 56%. Statistics from the Cambridge University Centre for Alternative Finance (CCAF) also pointed out that about 39% of Bitcoin’s energy consumption is carbon neutral.
Brett Winton, director of research at Ark Investment, even said that Bitcoin mining may promote the use of solar and battery systems on a larger scale in the power grid and expand its economic scale.
If the Lightning Network, PayPal, VISA, or wBTC on Ethereum are all regarded as side chains of another Bitcoin network, then SBF believes that Bitcoin transactions will be transferred to the side chain. In addition, he also believes that future payments may be based on stablecoins, and Bitcoin will become a “store of value” asset.
“If your goal is to trade U.S. dollars on the blockchain, then stablecoins will be your answer; but if you want to store assets in value, Bitcoin (or other cryptocurrencies) will be your choice.”
Finally, SBF concluded that the innovation of the encryption industry has been seriously underestimated. Many people think that the concept of DeFi is very good and can be used as a “supplementary tool” for banks. This is only the future we can see at the moment. In fact, if DeFi is really applied on a large scale, and you will see a different landscape.
He took Netflix as an example. He originally wanted to supplement DVD rentals, but accidentally discovered that watching movies and TV series online is the real future. Even many wonderful documentaries and TV series are Netflix’s original movies.
“It can be seen that many financial technology companies now want to enter the blockchain industry, and what we (the blockchain industry) are doing is subverting traditional finance. I think these financial technology companies need to carefully understand and integrate these technologies, and It’s not when we launched the product that we were surprised and realized later.”