Bloomberg interviews SBF, discussing the five major trends in the future of cryptocurrency

This article is sourced from Chain News, authored by James Chiu.

FTX founder Sam Bankman-Fried recently accepted an interview with Bloomberg, titled "Ideal vs. Reality: The Future of Cryptocurrency." For crypto investors, after a year filled with dreams and a terrible Q2, it may be the right time to discuss ideals and realities.

As a newly minted crypto unicorn, FTX has ventured into many areas of cryptocurrency, including not only exchange operations but also DeFi, payments, and even plans for carbon neutrality strategies. The interview covered topics such as cryptocurrency price volatility, the potential of the crypto industry, regulatory oversight, 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.

PayPal's CFO stated in May that due to its high price volatility, PayPal would temporarily not allocate cryptocurrency in its assets; last month, the world's largest investment bank, Goldman Sachs, reported that Bitcoin's high volatility makes it unsuitable as a "long-term store of value" or "investable asset class."

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 mature, the market will gradually form a consensus, so high volatility will not change until the market defines cryptocurrency.

"In Q1 of this year, the prices of crypto assets surged significantly, and many believed this was driven by the entry of large financial institutions into the ecosystem. In fact, after talking to many large financial institutions, even though they still don't know how to explore, they all expressed a desire to participate in the crypto industry in some form."

SBF stated that if you just want to trade stably on the blockchain, you can choose stablecoins, but if you want to invest in a store of value asset, you cannot expect these assets to be "very stable," as that contradicts the hypothesis of market efficiency.

No Consensus on Price, but Perhaps a Direction for Exploration

SBF continued to state that the potential of cryptocurrency and blockchain may manifest in applications such as payments (especially international transfers) and smart contracts.

Indeed, over the past year, many industries and institutions have begun to accept Bitcoin (or cryptocurrency) payments, including electric vehicle giant Tesla (which has since declined), real estate leader Caruso accepting Bitcoin as rent, and major league teams like the Oakland Athletics and the NBA's Dallas Mavericks.

The real game-changer may be the entry of payment giants. PayPal opened cryptocurrency payments in Q1, allowing its 29 million merchants to accept cryptocurrencies, and subsequently, VISA announced in March that it would incorporate Bitcoin into its payment landscape. Mastercard believes that CBDCs are the future, but even so, they are also collaborating with Gemini Exchange to launch a crypto financial card.

PayPal CEO Dan Schulman stated in the Q1 earnings call that opening cryptocurrency payments and trading is the company's most critical growth driver. Among users of cryptocurrency features, over 50% open the PayPal app daily, indicating a significant increase in user engagement. PayPal's net revenue for the quarter was $6.03 billion, a 31% year-over-year increase.

On the other hand, exchanges are also beginning to launch their own payment systems. Binance recently announced the Beta launch of Binance Pay, allowing merchants to accept over 30 cryptocurrencies. FTX also announced in May the launch of "FTX Pay," providing external tools for merchants to embed the program on their websites for "one-click payments."

Sam stated:

"For many people, electronic remittances seem deceptively easy. When it comes to cross-border (regime) payments, it usually takes days, with fees potentially reaching hundreds of dollars, and many online transfers do not support cross-border remittances, requiring a personal visit to the bank for transfers."

SBF believes that crypto payments could be a better "value transfer method," and over time, the systems and surrounding services for cross-border payments will become more complete.

Another potential exploration target is "smart contracts." SBF stated that executing smart contracts on the blockchain, allowing programming languages to automatically execute commands, arbitrate, and complete instant delivery and settlement, is quite cool.

Interestingly, while many believe that blockchain applications, such as DeFi, are highly speculative, the total value locked (TVL) in DeFi has not decreased significantly since the price drop in May.

According to a report from Arca crypto fund, although the native token prices of many DeFi protocols have fallen, the TVL has actually increased. For example, the price of AAVE tokens dropped by 60%, but the TVL reached an all-time high. The Yearn Finance token YFI fell by 50%, but compared to Q1, the revenue increased fourfold in Q2.

Overall, after the significant drop in May, the TVL of DeFi protocols remains high, and the number of users in the infrastructure has not decreased. In fact, May was the month with the highest DEX trading volume ever recorded.

Countries' Regulations are Clarifying the "Crypto Market Regulatory Framework"

The Chinese government has recently intensified regulatory efforts, with provinces such as Mongolia, Xinjiang, Qinghai, Yunnan, and Sichuan issuing mining bans, and Inner Mongolia even planning to blacklist miners in the social credit system. Additionally, major banks in China have been summoned to implement actions against cryptocurrencies and prohibit providing related services.

SBF believes that this regulation can be divided into two directions: one is to crack down on leveraged trading, and the other is to crack down on mining.

It is important to note that the focus of the Chinese government's crackdown is not on cryptocurrencies or digital assets themselves, but on exchanges providing leverage (crypto derivatives) and Bitcoin miners, which is closely related to China's monetary tightening policy.

Over the past year, the extremely loose monetary policies of various central banks have led to the appreciation of the RMB, rising stock markets, and increasing housing prices, with speculative trends also raising private financing rates. Given this situation, once the Fed begins to taper and raise interest rates, the withdrawal of funds could plunge China's economy into trouble. Therefore, starting in Q2, China began a series of measures, including reducing M2 money supply, bringing Ant Group (a private financing channel) under regulation, and of course, cracking down on the crypto industry.

SBF stated that governments worldwide are clarifying their regulatory attitudes toward the crypto industry, which is a process. As cryptocurrencies gradually enter the mainstream, governments are trying to communicate their attitudes and regulatory provisions regarding cryptocurrencies. For exchanges, it is essential to clarify the future policies of various countries.

He emphasized that it is fortunate that FTX is an international exchange, with no single continent accounting for more than 10% of total revenue; however, for exchanges that focus their business in a single market, this period may be a time of growing pains.

Another regulatory focus is the energy issue of mining.

Building a "Green" Crypto Industry

Since 2021, the energy issue of Bitcoin and cryptocurrencies has begun to surface. SBF believes that while many use internet security as a shield for energy consumption, considering the "transaction volume" on the Bitcoin network, the energy consumed by Bitcoin transactions is not on the same scale as other payment networks, so the energy issue is indeed something the crypto industry must face.

Fortunately, many competing public chains have adopted proof-of-stake (PoS) consensus, and Ethereum will gradually transition from proof-of-work (PoW) to PoS this year. However, the network is not the only place with energy issues. SBF stated that as the crypto industry gradually expands, crypto companies must also become greener, whether by voicing environmental issues or striving for carbon neutrality.

SBF previously provided a "carbon neutrality formula," which simply states that if you spend $1 in transaction fees on the blockchain, you should donate $0.0026 to Cool Watch, achieving carbon neutrality, and this formula has already been first used by BitMEX.

"We want to minimize our environmental impact, whether by voicing issues against deforestation, achieving net-zero emissions, or through other means. Making the crypto industry greener is reasonable in the future economic trend. In fact, FTX has already committed to achieving carbon neutrality at least by compensating Cool Watch."

In fact, it's not just FTX and BitMEX; One River Asset Management, with $2.5 billion in assets under management, has submitted an application for a carbon-neutral Bitcoin ETF to the SEC, aiming to offset the carbon footprint generated by Bitcoin assets in the fund by purchasing carbon credits, and the newly applied ETF will adopt the same approach.

The Future of Bitcoin: Becoming a Reserve Asset, Trading on Layer 2

What about Bitcoin's energy issue?

The Bitcoin Mining Council (BMC), formed by North American miners, previously released a survey indicating that over 20% of the network's hash power uses renewable energy, with an estimated 56% expected in Q2. The Cambridge Centre for Alternative Finance (CCAF) also reported that about 39% of Bitcoin's energy consumption has reached carbon neutrality.

Brett Winton, research director at Ark Invest, stated that Bitcoin mining could promote the larger-scale use of solar energy combined with battery systems in the power grid, expanding its economic scale.

Source: Bitcoin Mining Council from YouTube

If we consider the Lightning Network, PayPal, VISA, or wBTC on Ethereum as another type of sidechain for the Bitcoin network, then SBF believes that Bitcoin transactions will shift to sidechains. Additionally, he believes that future payments may primarily use stablecoins, with Bitcoin becoming a "store of value" asset.

"If your goal is simply to trade dollars on the blockchain, then stablecoins will be your answer; but if you want a store of value asset, Bitcoin (or other cryptocurrencies) will be your choice."

Finally, SBF concluded that the innovation in the crypto industry is severely underestimated; many people feel that the concept of DeFi is good and can serve as a "supplementary tool" for banks, and this is just the future we can see at the moment. In fact, if DeFi is truly applied on a large scale, we will see a different landscape.

He used Netflix as an example, which originally aimed to supplement DVD rentals but inadvertently discovered that online viewing of movies and TV shows is the real future, with many exciting documentaries and series already being Netflix's original productions.

"We can see that many fintech companies are trying to step into the blockchain industry, and what we (the blockchain industry) are doing is disrupting traditional finance. I believe these fintech companies need to seriously understand and integrate these technologies, rather than being surprised and caught off guard when we launch products."