No thaw in sight for the crypto winter as the post-FTX meltdown continues to reverberate.
FTX’s implosion and the subsequent industry knock-on has spooked the investing public, whose general confidence in the broader economy has simultaneously been taking hit after hit from macro factors like inflation and geopolitical unrest.
But Michael Gronager, CEO and co-founder of blockchain intelligence company Chainalysis and a longtime believer and builder in the crypto industry, disagrees. He spoke to PYMNTS’ Karen Webster, saying that characterizing the contemporary market situation as a “crypto-specific” cool down ignores bigger factors.
“The backdrop for me is that the entire world of finance has clearly taken a correction, mainly led by high interest rates,” he said. “A lot of companies, including Facebook, Netflix, have actually performed worse than the average [actor in the] crypto space.”
Tokenization of Real-World Assets
The future of the industry, Gronager said, is represented by digitally minted representations — or the tokenization of real-world assets — in order to facilitate frictionless value transfer. Gronager pointed to stablecoins as one of the biggest success stories in the crypto space, noting that they are tokenizations of real-world dollars.
Stablecoins facilitate transactions across the entire crypto ecosystem, the financial element of which would likely not be able to exist without them.
“It basically shows that there’s a lot of value in tokenizing real-world assets,” he said. “The conversations I’ve had with CEOs in the crypto space have almost always been around: ‘What are you doing around tokenization of your real-world assets? What are the next things?’”
Gronager is a staunch believer that just as the internet revolutionized the exchange of information, crypto and the public blockchain will do, and is doing, the same for the exchange of value.
“We saw back in the early days of the internet, where putting content like holiday photos or kitten pictures and recipes was simple … but as soon as it came to movies and music, copyrighted material, it became very hard. It took more than a decade after Napster before we had Spotify,” he said.
“And that’s the transformation happening right now — I do think we will see the first iTunes store-equivalent of the crypto space pretty soon [where users can transact with previously un-tokenized real-world assets],” Gronager added.
Over such a broad time frame, it’s easy to see why Gronager views the FTX debacle as a mere blip in the industry’s history. “I don’t think when we look at crypto 10 years from now, that we would even consider FTX a setback of [those goals],” he said.
Tokenized real-world assets, like stablecoins, serve a purpose outside of the pure-crypto world, and that purpose is generally pegged to their ability to facilitate instantaneous value transfer, especially when moving funds across borders. After all, it’s much harder, and takes much longer, to send or share a real-world asset across real-world distances than it is to simply transfer a virtual token digitally.
“[Crypto] has probably the biggest value transfer network in the world in terms of users and nodes by far,” Gronager said. “I think that’s a huge advantage.”
The anti-piracy commercials in the early-aughts that played before movies used to tell viewers that they “wouldn’t download a car.” When it comes to Gronager’s view of crypto’s future, that admonition may actually turn out to be prophetic.
Rules and Regulations
With every regulation, you need a catalytic event, Gronager said. In the case of cryptocurrency regulation, FTX’s collapse might be it.
The big challenge facing regulators is that today’s consumers are inherently global, with tomorrow’s consumers likely to be even more so.
“The only systemic change you can create is true regulation,” he said, adding that a big difference between challenges faced by regulators today versus 30 years ago is the global nature of cryptocurrency. “If [regulators] want to truly protect consumers, they need to first attract the businesses to their own jurisdictions.”
Given all the doubts swirling around the industry, it remains to be seen whether consumers will want to dip their toes into the marketplace even if regulators are successful in convincing businesses to operate compliantly within their geographies.
“Last year, crypto had explosive [user] growth,” Gronager noted. “A lot of stimulus checks and the excitement of being rich tomorrow, that speculation. But now this year interest rates went up, the expectation of returns for crypto, like for stocks and for other things, has diminished. … After FTX, everyone got a sharp reminder that most of the centralized crypto exchanges don’t have consumer protection regulation tied to them.”
Chainalysis, which provides industry intelligence, hasn’t seen a lot of new people entering the crypto space outside of the NFT side of the industry.
It remains to be seen whether proper controls and regulation will fix that.
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