Hasu talks to Suzhu: How do global macro markets affect the crypto industry?

Source: Uncommon Core

Compiled by: Linqi, Chain Catcher

(Some parts have been omitted)

Hasu: What is the relationship between the crypto industry and the macro economy?

Suzhu: The past few months have been a low point for the crypto market, and some technical staff in companies holding tech stocks and cryptocurrencies nearly went bankrupt due to the market conditions a few months ago. But now we are all back. There have been many different issues over the past three months; some investors believe we have entered a stagflation period or other situations. But I think it is becoming increasingly clear how stocks are rebounding from their lows; even with interest rate hikes, inflation cannot be resolved, which is largely related to our economic structure.

You may have seen bond sell-offs, possibly due to rising long-term interest rates. People were also very pessimistic about tech stocks, but there hasn't been a sell-off like that seen in bonds. Because technology is about future value, it is inherently long-term. If you discount it now, then obviously future value will decrease. Both bonds and cash are losing value, and investors realize they must capture wealth growth and cannot rely on fiat currencies or bonds.

We have seen that bonds, which should be safe in a negative interest rate environment, are no longer safe; they have even dropped more than stocks. For some other stocks, you need to know more to ensure their value. I believe that in the long term, people will hold a certain proportion of crypto assets, and this proportion will continue to rise as investors become more knowledgeable about the crypto industry.

Hasu: Do you think the results we achieve in the crypto industry are entirely dependent on macro factors?

Suzhu: Yes, I believe we are now entering a phase of a crypto grand alliance. People will think about what to invest in and what will harm their portfolios. Based on my understanding of deflation, it will not have a particularly large impact on the crypto market itself. Because deflation is still very early, these forces are not enough to affect the TVL of crypto assets.

In addition to these macro factors, I have also been paying attention to the situation between Russia and Ukraine in recent weeks. What I see is that regardless of how people previously evaluated cryptocurrencies—whether they called them frivolous, speculative, disruptive, or dangerous—now absolutely no one says they are frivolous or speculative. People are now only debating how disruptive they are or the benefits they create.

In this regard, I have two completely different viewpoints. One is that cryptocurrencies are absolutely beneficial because Ukraine has used them to make funds liquid; they can receive donations and convert them into supplies. Russians can also escape with crypto assets that are not subject to physical attacks. So the benefits of cryptocurrencies make sense here.

However, some people might argue with you about this; they might believe that Russians could avoid some sanctions from countries because of cryptocurrencies. I will elaborate on this later.

My second viewpoint is that we are in an unprecedented era, an era where ordinary people have opinions on what should or should not happen in the world today. This is actually a strange phenomenon; some discussions are clearly unnecessary, such as debating whether something should happen, which causes people to waste a lot of time. I think a more interesting question should be what will happen next and what the subsequent reactions will be.

From this perspective, the adoption of cryptocurrencies arises naturally. Whether in Ukraine or Russia, both are making strides in the crypto space, whether it's Russia's mining or energy payments in Bitcoin, or Ukraine issuing NFTs, etc. Additionally, the development of cryptocurrencies in the Middle East is also interesting; they have expressed a desire to establish another parallel financial system, and Western governments have similar ideas.

The idea of a credible neutral system is favored by many because we believe that under a multi-level world order, no country can sanction an individual, and people in this world are more willing to contribute because they cannot recognize a world order.

Hasu: The West has frozen multiple assets of Russia as sanctions; will this enhance discussions against cryptocurrencies?

Suzhu: Cryptocurrencies can be used as a means of sanctions. I generally believe that if something is useful to people, it is also useful to criminals. Because criminals are also people, using the same phones, computers, and networks as we do, so no technology is exclusively applicable to non-criminal populations. Technologies like cryptocurrencies are currently in their infancy, and in many countries, regulatory rules have not yet been established, making it a volatile topic. They may want to impose strict regulations on cryptocurrencies to sanction them, or they may wonder whether we should give cryptocurrencies some space as we do with other things on the internet.

These are very tricky issues. I think different social groups will provide different answers based on these questions, and these answers may also depend on their priorities. For example, I understand that the Indian community is skeptical of U.S. sanctions due to their close oil transactions with Russia.

I believe that in the short term, the war in Ukraine may end with the West's victory and Ukraine reaching friendly agreements with Russia. However, in the long term, many countries will actively seek to break free from the existing financial system's excessive dependence, and some will adopt credible neutral technologies, while others will strive to create alternative systems. But the entire process will take years. I believe the role of crypto in this will be significant.

On one hand, you will see the West continuously adopting cryptocurrencies as a means of expressing liberal values, as well as freedom of speech and monetary freedom. On the other hand, you will see governments continuously adopting cryptocurrencies. For some non-Western forward-looking players, cryptocurrencies are a reliable neutral currency, a reliable neutral platform that can be used for transactions. I believe that essentially, cryptocurrencies will become everything.

One perspective I gained from a book I read earlier is a great lens through which to view the crypto industry. Cryptocurrencies, more broadly, peer-to-peer encryption technology, represent a tremendous political force. This means we cannot reason about whether it should be banned because it cannot be banned in itself. It's like how the nobility at that time could not believe in the possibility of change; the occurrence of change indeed came from the tremendous political power of technology. This also correspondingly changed the nature of capital. In contrast, there is peer-to-peer encryption on the internet. In the 1990s, cryptographers invented peer-to-peer encryption technology, which the U.S. military regarded as weapon-grade technology and suggested it should be banned. But cryptographers argued that it was just code and text. In the end, it turned out to be just that.

One of the predictions made by sovereign individuals is that as we enter the information society, the work people do will mainly be online and digital. When this happens, the income of the places they live will become lower, and the monopoly on violence will become weaker. It’s not that they no longer have a monopoly on violence, but rather that what they can extract from that monopoly is becoming less and less. In summary, sovereign individuals predict that once people enter the digital world, the demands of the places they live on their productivity will become minimal. Of course, this will also break the local government's control over residents, which is detrimental to large governments and beneficial to those with different management models that do not rely on this.

Hasu: What do you think about nation-states and the new competition and experimentation?

Suzhu: Nation-states are a great development; people may freely build a community with those who share their will, and this future is not out of reach. Currently, we see that the creation of these communities is entirely digital. At the same time, the existence of purchasing agents is also unprecedented. For the older generation that did not grow up in the connected age, the idea that you can establish such strong connections online will shock them. Some older people think the internet is "bad," and they say life is good without it.

But for young people, some of their important moments are formed online. I believe this diversification will fully take shape in the coming years, but it is difficult to predict how it will manifest; in my view, it will surprise people. I believe that in many ways, the "bonds" it creates will be stronger than the "bonds" established physically. Because it is actually achieved through free choice, including participating in building together, experiencing things together, etc.

I think Dubai is a very interesting place, with a governance model resembling a metaverse model. Here, it’s like, if I don’t tax you, it means I don’t track your behavior. You can do anything, and nothing is taxed, but I hope you buy a piece of land here, just like a token-based closed community. This model works very well for them because they have a lot of open land. It is very attractive; they can offer a free monarchy.

In this case, the "monarch" does not care about what you do because they understand they have complete dominion and have created a business model that attracts talent and capital. If people do not like this system, they can leave. I believe people will ultimately become more interested in this model. Of course, the promise of liberal democracy is that everyone has a voice, but the end result is that the majority wins over the minority. The question may be, when people can leave these systems, will they still be stable? Because people can leave both free monarchies and free democratic countries.

Globalization has built tracks for the free movement of people, labor, and capital; how this generation uses this freedom to shape their lives is a very open question. Because now, it is not just software developers and information workers who enjoy this freedom; anyone can participate in the internet. According to a survey from the 1990s, people no longer want to work where they were born, and this is even more true for people from certain countries today. Therefore, globalization is very favorable for the crypto industry; it has abstracted the idea that you must save in your country's fiat currency while pushing you to allocate assets with a group of like-minded people, such as Bitcoin.

I do not like large institutions buying and staking crypto assets; it seems strange and out of place. Therefore, to some extent, I think volatility is a healthy way for the market. It will shake institutions but not individuals; if you look at the data from exchanges, you will see retail investors buying in when the market drops, with very few individuals selling. In the long run, I do not think institutional adoption is very important for the crypto industry; what interests me most is how people protect their wealth, trade with each other, and how governments respond to the facts that people have already established, rather than whether people should do so.