Cryptocurrency analyst. Founder and editor at btcpeers.com
Despite going through a very rough period between early 2018 and early 2020, the so-called “crypto winter” has seemingly come to an end. Bitcoin and alternative markets are showing signs of life in terms of price discovery. Combined with the rise in attention for DeFi projects, the second half of this year - as well as the years to come - offer a lot of potential. More and more companies are paying attention to Bitcoin. As Binance CEO Changpeng Zhao states, it is a sign of stimulus money flowing from Wall Street into Bitcoin.
As the total crypto market cap approaches the $360 billion range again, there is a genuine excitement in the industry. Together with the help of Binance CEO Changpeng Zhao, we were able to discuss previous, current, and possible future trends. There is a lot to look forward to, but never any guarantee of success.
It is evident that actions by central banks and the coronavirus pandemic may be two crucial catalysts driving this renewed interest in cryptocurrency. There is also a chance that some currencies may decouple from Bitcoin, at least in the price department. This can only happen if alternative projects continue to build, evolve, and adapt.
Another crucial topic is the DeFi industry. A lot of growth has been noted in this department, although this industry is still in the very early stages of development. Binance is a proponent of the decentralized finance concept. Moreover, Binance Smart Chain built by Binance and global developers mainnet will launch later this year, which may shake things up moving forward.
Several trends have come and gone in the cryptocurrency world over the years. Some have disappeared, whereas others are only now hitting their stride. Blockchain has come a very long way, yet there are still plenty of improvements to be made. It may prove to be an integral part of the cryptocurrency industry in post-2020.
Andrey Sergeenkov: The year 2020 has rekindled interest in the cryptocurrency industry, judging by the current market sentiment. Is this merely due to the coronavirus, or do you think other factors may be at play?
Changpeng Zhao: There are always many factors affecting prices, in a marketing driven price discovery system.
The QE policies and stimulus packages enforced by the governments lead to inflation of their local fiat currencies, driving investors to look for alternative investments assets. It has been one of drivers for a growing number of retail and institutional investors in the past few months. As a matter of fact, Bitcoin was specifically created in 2009 for handling situations like this.
While the pandemic may serve as the catalyst to the market, there are other drivers behind it.
- In the last 11 years, the industry has been continuing to scale, both by number of users and market cap. The market is still at its very early stage, accounting for only 0.1% of the market cap of traditional markets. It’s at the start of an exponential growth.
- The third Bitcoin halving. After the third Bitcoin halving, new Bitcoins produced every 10 minutes are reduced by 50%. So the supply side is decreasing while the demand side is uptrending, which adds to the intrinsic value of Bitcoin. After the first two halvings, there’s a psychological element at play. If you refer to the historical records of how the Bitcoin price moved after the first two halvings, you will see there has been a very positive impact, which in turn attracted more attention and drove more users to the industry.
- DeFi boom. DeFi is a hot topic of the year 2020. In general, DeFi products provide investors single digit to double digit annualized return rates while traditional banking is utilising the “zero interest rate policy”, which aggravates the situation of depreciating fiat currencies and drives investors to harvesting high yields in crypto space.
- More institutional investors and traditional financial institutions are entering or showing interest in the space. Big hedge fund manager Paul Tudor Jones said his Tudor BVI fund may hold as much as a low single-digit percentage of its assets in Bitcoin futures. JP Morgan has started to provide banking services to crypto exchanges while its rival Goldman Sachs said it is exploring the viability of its own digital token. Institutional interest cast a positive vote for the industry, encouraging more retail investors to enter.
- Central banks are researching and working on their own digital currencies, which helps spread the influence of the blockchain industry to a broader audience.
- Favorable policies. As the market matures gradually, we’ve seen some favorable regulations being rolled out. For example, US national banks are allowed to provide custodial services for crypto. The NYDFS greenlight allows coins to be listed or used by licensed virtual currency businesses without further approval.
In conclusion, there are many factors contributing to the momentum of the crypto industry.
Andrey Sergeenkov: For years, there have been rumors among cryptocurrency community members about certain tokens or assets “decoupling” from Bitcoin. Is this viable, in your opinion, and why (not)?
Changpeng Zhao: Generally, Bitcoin coupling is pervasive across the industry, partially due to the fact that Bitcoin is the first and the most widely recognized cryptocurrency in the market, and partially due to that almost all tokens are traded against Bitcoin. So if Bitcoin price moves up quickly, major cryptocurrencies will present similar patterns, and vice versa.
However, we do see some exceptions. Some altcoins show the momentum of decoupling from Bitcoin as they gain traction and scale quickly. To take some DeFi projects for example, the price of the DeFi-based tokens have increased by several times in the past month while Bitcoin price is comparatively stable despite surging to its recent one-year ATH at $12,000.
One of the biggest reasons, I believe, is the growing user base and user demand of the respective projects. So fundamentally, the viability of decoupling from Bitcoin will depend on whether the project is creating value for its users, and whether its users are willing to use it.
In the short term, altcoins will still have correlations with Bitcoin. In the long term, Bitcoin dominance will be undermined or even replaced by an emerging altcoin, and decoupling or total independence is possible.
Andrey Sergeenkov: The 2017 crypto rally seemed to focus primarily on “if Bitcoin gains value, altcoins do too”. The past year and a half, this correlation seems to have shifted. Is now the time for projects that effectively provide value to shine, or will the 2017 repeat itself eventually, but less outspoken?
Changpeng Zhao: Well, history never repeats itself.
The year 2017 featured the boom of ICO projects, some of which may have good vision and put up a team dedicated to building while some were trying to game the new mechanism and make quick money.
After the bearish 2018, some high-quality projects emerged from the crowd. They have been working on solutions to bring blockchain to life. I believe it's now time for the really valuable projects to shine.
It does not mean that prices of those projects will surge immediately. After all, price is the reflection of value. It takes time for the team to build and inject value to their projects gradually. It means the products of those projects are engaging more real users, and that long-term investors are looking for and are willing to support the development of those projects, and that its intrinsic values will accrue as time goes. Those projects are building solutions that will ultimately transform the industry.
Andrey Sergeenkov: Regarding projects potentially providing value, what is your opinion - and hope - for interoperability in the cryptocurrency and blockchain world?
Changpeng Zhao: Interoperability is an effective method in boosting use cases and massive adoption. It’s too restrictive when users are only allowed to use the tokens on one blockchain. They are not able to, for example, earn rewards on a different chain in the past.
Luckily, with the development of interoperability solutions such as interoperability bridges, token holders on one platform can now use exactly the same tokens to participate in the staking schemes of another chain, earn rewards and even engage in the online governance of the other chain.
In the long run, interoperability would mean real freedom of money, where they can hold whatever coins they want while accessing the services they want.
Andrey Sergeenkov: Many people had hope for DeFi to be a catalyst of interoperability, but that doesn’t appear to be the case as of yet. Are there any projects on Binance’s radar that could achieve a “crossover” between decentralized finance and interoperability?
Changpeng Zhao: Binance has built the Binance Chain and Binance Smart Chain with community developers. Binance Smart Chain has launched its testnet, with mainnet to be launched this quarter. Both chains feature interoperability. While Binance Chain is more focused on the application of Binance DEX, its parallel chain Binance Smart Chain supports smart contracts and brings forward Ethereum Virtual Machine compatibility to the ecosystem,, allowing global developers to build dApps or build interoperability solutions on top of it.
Binance Chain has successfully implemented many interoperability solutions including atomic swap technology. Though in its testnet phase, Binance Smart Chain has already introduced some interoperability solutions including oracles that connect off-chain data with on-chain data.
Andrey Sergeenkov: Sticking with the DeFi topic, Binance appears to be expecting big things for the industry. In a recent Tweet; you stated how “BNB likes DeFi”. Can you elaborate on that statement a bit more?
Changpeng Zhao: BNB is essentially a utility token. As of the latest count by us, there are at least 112 use cases for BNB and it’s been keeping expanding. It’s a DeFi token by many metrics. Binance Chain sports a native high-performance DEX, and BNB is the native coin on Binance Chain.
Andrey Sergeenkov: What are your thoughts on exchanges potentially integrating DeFi solutions directly? For now, trading platforms primarily list these native tokens, but they don’t necessarily offer “extra value”. Is a closer collaboration between a platform like Binance and cryptocurrency or DeFi projects a pipedream, or something we will see eventually?
Changpeng Zhao: Binance is a proponent of DeFi. If you look at the broad Binance ecosystem, you’ll see there have been some collaborations going on between Binance Chain/Binance Smart Chain and some of the leading DeFi projects.
Besides listing some of the DeFi projects on the Binance exchange, we also support DeFi projects through Binance Launchpad, Binance Labs, etc., allowing the projects to access the resources of Binance ecosystem for further growth.
Andrey Sergeenkov: Are you in the process of “strengthening” relationships with some of the previous - or upcoming - Binance Launchpad projects? If so, what can you tell us about those plans?
Changpeng Zhao: By launching the projects on Binance Launchpad, we are opening the resources of the Binance ecosystem to those projects. In general, we are supportive of the development of all launchpad projects while staying neutral.
Andrey Sergeenkov: One of the recently listed projects on Launchpad is “The Sandbox” game. How far along has the blockchain and gaming industry come in recent years? Is this segment still a “niche” or would you consider it ready for mainstream adoption at the current stage? If still niche, what type of changes would you like to see happen?
Changpeng Zhao: The crypto industry is a niche market if you compare it to the traditional financial markets. So I wouldn’t say the blockchain-powered gaming is ready for massive adoption.
Compared to centralized gaming platforms, there’s a lot of room for improvement for blockchain-powered gaming platforms, including UI, UX, speed, etc.
The bright side is, we’ve seen continuous growth and development in the crypto industry. And, we are confident it will maintain the momentum, attracting more users and making crypto and blockchain truly a part of our daily life. Gaming, by its nature, has an edge to integrate with blockchain technology. It is one of the earliest real-life use cases of blockchain.
Andrey Sergeenkov: You are often named as the main cryptocurrency influencer. Are there any other influencers or crypto media that you tend to follow more actively since you became part of the cryptocurrency industry?
Changpeng Zhao: I’ve followed a bunch of people on Twitter as I’d like to hear different perspectives and communicate with people of insights. There are many people that I respect in the industry, some of whom I had known before I entered the space. I don’t intentionally pay attention to a particular influencer or media, though. Everyone has different views. I recommend not taking any view by any person wholesale. We have to apply our own judgement and critical thinking on each view.
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