This article was originally published on Chain News by James Chiu

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High price volatility is the process of building consensus

Bitcoin (or cryptocurrency) price volatility has long been criticized.

PayPal CFO said in May that due to its high price volatility, PayPal will not allocate cryptocurrencies in assets for the time being; 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 class".

SBF pointed out that the pricing of any financial asset depends on market consensus, and high price volatility is a characteristic of emerging assets. However, as the asset matures, the market will gradually form a consensus, so the high volatility will not change until the market defines the cryptocurrency.

"In Q1 of this year, the price of encrypted assets has risen sharply. Many people think that this is driven by the entry of large financial institutions into the ecosystem. In fact, after talking with many large financial institutions, even if they don't know how to explore, they all Said that he wanted to participate in the encryption industry in some form.”

SBF said that if you just want to have stable transactions 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 principle of efficient market. hypothesis.

There is no consensus on the price, but the direction of exploration may be

SBF went on to say that the potential of cryptocurrencies 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) payments, including electric car giant Tesla (now rejected), real estate leader Caruso accepting bitcoin as rent, major league sports Home team, NBA Mavericks team.

The real change may be that payment giants start to join. PayPal opened cryptocurrency payment in Q1 of this year, and more than 29 million merchants on the platform can accept cryptocurrency. Then VISA also announced in March this year that Bitcoin will be included in its payment territory. MasterCard believes that CBDC is the future, but even so, they are also cooperating with Gemini Exchange to launch encrypted financial cards.

PayPal CEO Dan Schulman (Dan Schulman) said in the Q1 financial report conference that open cryptocurrency payment and transactions are the most critical growth drivers for the company. More than 50% of encrypted currency function users open the PayPal application every day, and the user stickiness has increased significantly. Paypal's net revenue for the quarter was $6.03 billion, up 31% year-over-year.

On the other hand, exchanges have also started to roll out their own payment systems. Binance announced earlier that Binance Pay has launched the 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".

Sam says:

“For many people, the ease of sending money electronically seems a bit self-deceiving. When it comes to cross-border (regime) payments, it usually takes days, processing fees can be hundreds of dollars, and many online transfers don’t support cross-border at all. To remit money, you have to go to the bank to transfer the money in person.”

SBF believes that encrypted payment may be a better "value transfer method". As time goes by, the cross-border payment system and peripheral services will be more complete.

Another potential exploration target is "smart contracts". SBF said that the concept of executing smart contracts on the blockchain, allowing the programming language to automatically execute orders, arbitrate, and complete instant delivery and liquidation is quite cool.

Interestingly, while many consider blockchain applications, such as DeFi, to be very speculative, DeFi’s volume locked (TVL) has not decreased much since the price drop in May.

According to the report of the Arca Encryption Fund, although the prices of native tokens of many DeFi protocols are falling, the TVL (total lock-up volume) has actually increased. For example, the price of AAVE tokens fell by 60%, but TVL hit a record high. Yearn Finance token YFI fell by 50%, but compared with Q1, Q2 saw a four-fold increase in earnings.

Overall, after the sharp drop in May, the TVL of the DeFi protocol remains at a high level, and the number of infrastructure users has not decreased. In fact, May was the month with the highest DEX trading volume ever.

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National regulators are clarifying the "encryption market regulatory framework"

The Chinese government has recently strengthened its regulatory efforts, including Mongolia, Xinjiang, Qinghai, Yunnan, and Sichuan provinces have issued mining bans, and the Inner Mongolia Autonomous Region even has miners included in the social credit blacklist. In addition, they interviewed major banks in China to implement the crackdown on cryptocurrencies and prohibit them from providing related services.

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

It should be noted that the focus of the Chinese government’s crackdown is not on cryptocurrencies or digital assets themselves, but on exchanges and Bitcoin miners that provide leverage (encrypted derivatives), and this has a lot to do with China’s monetary tightening policy. relation.

In the past year, the extremely loose monetary policies of the central banks of various countries have led to the appreciation of the RMB exchange rate, the rise of the stock market, and the increase in housing prices. economy is in trouble. So starting from Q2, China began to carry out a series of measures, including reducing the M2 money supply, bringing Ant Financial Services (private financing channel) into supervision, and of course cracking down on the encryption industry.

SBF said that governments around the world are clarifying their regulatory attitudes towards the encryption industry, which is a process. As cryptocurrencies gradually enter the mainstream, governments of various countries try to tell everyone their attitudes and regulations towards cryptocurrencies. For exchanges, it is necessary to clarify the future policies of each country.

He emphasized that fortunately, FTX is an international exchange, and the proportion of any one continent does not exceed 10% of the total revenue; but for exchanges that put their business in a single market, this period of time may be painful Expect.

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Create a "green" encryption industry

Since 2021, the energy issues of Bitcoin and cryptocurrencies have started to surface. SBF believes that although many people use network security as a shield for energy consumption, considering the "transaction volume" on the Bitcoin network, the energy consumed by Bitcoin transactions is not at the same level as other payment networks, so energy issues It must be a problem that the encryption industry has to face.

Fortunately, many competing public chains have adopted the proof-of-stake consensus (PoS), and Ethereum will gradually convert from proof-of-work (PoW) to PoS this year. But the web isn't the only place where energy is an issue. SBF said that as the encryption industry will gradually expand, encryption companies must gradually become more green, 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 formulas". Simply put, if you spend 1 dollar in transaction fees on the blockchain, you will donate 0.0026 dollars to Cool Watch, which will achieve carbon neutrality. and, while this formula has been exchanged by BitMEXFirst to use。

"We want to eliminate the impact on the environment as much as possible, whether it is to speak out on the issue of prohibiting deforestation, to achieve net zero emissions, or in other ways. It is reasonable to make the encryption industry green in terms of future economic trends. Facts In fact, FTX has promised to at least first achieve carbon neutrality by compensating Cool Watch.”

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

What about Bitcoin’s energy problem?

announcedannouncedAccording to a survey result, more than 20% of the computing power of the entire network uses renewable energy, and it is estimated that Q2 will reach 56%. Statistics from the Center for Alternative Finance (CCAF) at the University of Cambridge also pointed out that about 39% of Bitcoin’s energy consumption has reached carbon neutrality.

Ark Investment Research Director Brett Winton even said that Bitcoin mining may promote the use of solar energy plus battery systems on a larger scale in the grid and expand its economic scale.

Source: Bitcoin Mining Council from YouTube

If Lightning Network, PayPal, VISA, or wBTC on Ethereum are all regarded as another side chain of the 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 dominated by stablecoins, and Bitcoin will become a "store of value" asset.

“If your goal is just to trade dollars on the blockchain, then stablecoins are your answer; but if you want a store of value, bitcoin (or other cryptocurrencies) is your answer.”

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 present. In fact, if DeFi is really applied on a large scale, and you will see a different landscape.

He took Netflix as an example. It was originally intended to be a supplement to DVD rentals, but he accidentally discovered that watching movies and TV series online is the real future. Even many wonderful documentaries and TV series are already Netflix original films.

"It can be seen that many financial technology companies want to step into the blockchain industry, and what we (the blockchain industry) are doing is subverting traditional finance. I think these financial technology companies need to seriously understand and integrate these technologies, and It’s not when we launch a product that we’re surprised and belatedly aware.”