Cryptocurrencies have been steadily entering the mainstream arena. The current state of play goes from the almost illogical (crypto coins that have no intrinsic value) to the logical (products that serve a purpose and are deemed to improve our daily lives).
But there is no denying the high level of activity seen in this space over the past year, and a growing interest in crypto from consumers, businesses, and governments.
In a panel discussion ‘Digital Currencies: The Missing Puzzle Piece?’ at the Singapore FinTech Festival, a participant asked whether crypto’s value has caught up with prices, citing the Shiba Inu coins as an example. He also questioned how it is possible that these tokens are currently valued more than assets like Deutsche Bank.
Shiba Inu crypto coins are currently worth US$30 billion in total value.
Responding to the query, Kevin Lim, director at Temasek gave his personal view: “Do I think that the overall crypto economy now is showing signs of speculative behavior? My honest answer is yes.”
“It is speculative. When people come in, they shouldn’t be naive, they should know what they should be expecting.”
“Speculation itself is a double-edged sword I think, on one hand, that’s really what drives the interest and involvement of the community coming back. Because look, hey, everyone wants to make money and there’s an opportunity here to make meaningful money, right, so we should call a spade a spade,” said Kevin.
“Now, given how cryptos have gone up and down – we have had crypto winters in the past. I think it’s naive to think that the direction for the prices is just one direction, one way up,” he added.
“If you’re coming to the scene with that in mind, saying that, hey, whatever asset that holds today, it’s gonna appreciate by 10 times, 100 times, 1000 times, I mean great for you. But again, it’s really about whether you can get in and out at the right opportunities.”
Eric Anziani, chief operating officer at Crypto.com noted that beyond the pricing, “there’s still a lot to be realised for crypto.”
“I think where we see a much bigger economy is through Web 3.0. For now, we’re building the tools, and they’re priced differently sometimes even on the non-fungible tokens (NFT) space at stratospheric prices,” he said.
“I think we should not focus on that, we should focus on whether we’re building the right tools for Web 3.0 for this more fair and equitable world that we want to build where people have true ownership, and better control of their money, data, and identity. And prices will come to something that is closer to value,” Eric added.
Beyond the wild price valuations, the panel also discussed the hype on NFTs that has taken the mainstream internet by storm. The reason behind the hype is because NFTs are now pegged with art and music, transforming their intrinsic value as digital products, the panelists explained.
“What we’re seeing is that really over the past year, crypto is becoming cultural. It’s becoming cool,” commented Cuy Sheffield, vice president, head of Crypto at Visa.
“It used to be if you were investing in crypto, you were kind of weird. Now we’ve seen with the NFT market there’s a whole new class of users and mainstream consumers coming into the space,” Cuy said.
“There are people who are interested in art or interested in music, interested in culture in general. Now they’re setting up crypto wallets in waves and they’re excited to use a crypto wallet to be able to mint an NFT or they can monetise their creative talent and to be able to support other creators,” he added.
Cuy mentioned CryptoPunks as one of the first examples of this bridge between art and technology and its road to becoming a mainstream collectible.
“We think that NFTs really represent a new tool, and it’s really shifting the nature of what crypto wallets do where it’s not just where you hold your money. Crypto wallets could become the place where people discover their favorite music,” Cuy added.
“So we think that there’s this component of really a crypto wallet becoming more of a Super App and influencing a consumer’s life beyond just being invested in a new asset class. This changes the brand, it changes the way consumers relate to it when you bring in these elements that people resonate very strongly with.”
It’s just getting started
Kevin added that this crypto push is happening quicker than expected. This includes the developments in the industry. “That’s really seen in the exponential surge in the volumes of cryptocurrencies traded across the past few years.”
“If we had this conversation just three years back, would we have expected some of the surges in prices and volumes? I think it’s quite difficult to be predictive. It’s difficult to predict how things will shape, especially when it is innovative, it is at an early stage, and is happening in a parabolic fashion,” Kevin said.
“Now if you’re an artist, and you’ve never been in the space of a coder or you’re not a developer that does not mean that you can’t come on board, you just need to know how to find a way to play.”
“I think the whole concept here is that it’s okay, you must have a starting anchor point. But collectively bringing together different strengths to make it work, I think that concept itself is powerful,” he said.
On a whole, the world itself is also getting more and more digital, and the focus is really on 10 years, 20 years, down the road itself, on what would be a digital economy, Kevin noted.
“It’s really about people and the millennials and the generations that come after that…The way Temasek sees it as well is if we have an enabling infrastructure and we bring together groups of talented individuals in a permissionless world to contribute in their various aspects.”
“When we build things that are exciting, fun, and have a cultural aspect, that’s when products have a certain longevity.”
Striking a balance amid the volatility
The panel also touched on the role centralised players have in the crypto space, and whether that’s a conflict of interest with crypto’s decentralised concept and its founding vision.
Panelists justify that centralised players, like centralised crypto exchanges, fill the middle ground for consumers who do not know the technicalities but want to participate in the crypto space.
Yusho Liu, co-founder and CEO of Coinhako said: “I think at the end of the day, let’s be upfront, a lot of people talk about it, but not many people have actually accessed it. Because most users in general, the non-technical people, have issues with just resetting passwords. So how do you expect them to understand how to open a MetaMask account, pay for gas, and then make the transaction.”
Keeping users safe with their assets is a priority when a crypto firm is regulated, and Coinhako goes through a framework that includes making sure it conducts analysis so that it knows where the tokens are coming from and where it’s going to.
“It’s a couple (more) steps. It’s a lot of resources used. But I think more importantly the reason why we go through these steps is so that we can create a safe environment for users, and also make sure it’s controlled,” said Yusho.
Cuy noted that in the current crypto space, there are very few merchants that are directly accepting crypto and it’s a “challenging experience for consumers to have to figure out which merchant they want to spend money on”.
“So the ability to pair a visa credential (physical or virtual) to that same account that the crypto is held in and to create that as a seamless experience – we think will solve a major problem. It will make consumers more interested in investing in and be exposed to this asset class.”
Cuy notes that there are around 250 million crypto users today. Although that shows tremendous growth over the last six months, compared to the global population, it’s still a long way to go.
“Being able to bridge traditional financial instruments to digital currency, and back to traditional instruments – It’s still a very important function that we have to play if we want to continue to grow the industry,” he said.
“It will continue to be there to really help the adoption of this space. I think centralised platforms have made tremendous progress on that front, and it’s usually showcased through certifications and licences that they have acquired to demonstrate as a testament of their efforts and investment to protect customer funds,” Cuy added.
Role of stablecoins growing
Beyond the fancy frills of NFTs for art and music, the role of stablecoins is growing.
Temasek’s Kevin noted: “So what I’ve seen for stablecoins is that there’s an explosion in momentum. I think about the middle of last year, we’re talking about a total market cap of no more than US$20 billion globally. And then now it has surged, the last check was about US$130 billion. So that’s about a six to seven times increase,” he said.
“There’s a lot of interest in the space and an interest that is not waning. On that basis then, what is that interest like, what’s really driving it? One would be, of course, is the price volatility, which crypto as a whole is an attractive asset.”
“If you bring it back to the real-world economy, there’s a lack of a solution at this juncture. A lack of what could be the alternative to that aside from stablecoin projects, and bankers or central bankers in the space are trying to innovate and find ways to bring new solutions,” Kevin said.
“We’ve seen a lot of activities and central bank digital currency (CBDCs) research that’s yet to come online as well. I think the wholesale market is also waiting with bated breath. There’s a lot of questions, a lot of research has also been done about the value in this space, and we’ve seen a few that I think has promise,” he added.
Kevin highlighted Project Dunbar which is making international settlements using multi-CBDCs. He also mentioned Partior, Temasek’s recent blockchain-based peer-to-peer interbank clearing and settlement network venture created together with DBS and JPMorgan.
“These concepts really leverage blockchain technologies to enable faster and broader transactions in the wholesale arena,” Kevin said.
Regulation is still necessary
At the end of the day, the panelists note that there’s still a need for regulation, and the more important question is when and how.
“The industry is such that it’s valued at US$3 trillion at this point in time. There’s a recent IMF report saying that at this juncture, it is probably still not something which would be an implicit or immediate threat to financial stability, but it’s growing.”
“Now the point though, is how do you regulate and whom do you regulate? And how do you regulate something whereby the nature of it is meant to be permissionless?” said Kevin.
“There are many debates on those fronts, but from a directional standpoint, I believe central banks will be coming in for sure. Because, again, this is not going to be a toy. It’s not going to go away.”
“When you have stablecoin companies or projects that are holding massive amounts of fiat currencies or fiat obligations within the crypto networks, it’s just difficult to really ignore them and say that look, there’s no need to regulate the space,” he said.
Featured Image Credit: CryptoPunks, Forbes