Author: Cobo and F2pool co-founder Shenyu

Source:

https://mp.weixin.qq.com/s/2zL_rwwGJcgO6XwvdmwsLQ

What to Watch After the Approval of BTC ETF?

In the directions of regulation and compliance, what are the key events worth our attention in the future?

The first focus is the approval of the BTC ETF.

In March 2023, many North American banks had their channels with crypto severed. In early 2024, the primary focus will be on the approval of ETFs. This will open new channels for traditional financial funds to enter the crypto industry, enhancing compliance.

In 2024, we need to observe how the asset size changes after ETF approval, the emergence of derivatives based on ETFs, and the landing and development of asset management in various countries post-ETF approval.

Furthermore, after ETF approval, attention should be given to whether it will extend from Bitcoin ETFs to other currencies like Ethereum. This occurrence signals a positive development, indicating that blockchain assets like Bitcoin and Ethereum are being accepted similarly to traditional assets, entering balance sheets.

Additionally, in 2024, there are several key events to watch:

1. Effective Date of US Financial Accounting Standards Board Cryptocurrency Accounting Rules: Expected to happen at the end of 2024, this will significantly impact banks and enterprises, allowing them to include crypto assets on their balance sheets.

Once these standards take effect, companies can account for crypto assets on their balance sheets at real-time values, better reflecting the true value of these assets. This will strengthen the willingness of companies and enterprises to hold digital assets.

If this trend continues to expand, we will see bank-side effects, which means banks can also hold digital assets as alternative assets or support collateralized lending — lending fiat currency against crypto assets, better providing an over-the-counter leverage function than the current amount of floor leverage.

2. Movement of Digital Asset Reserves in Small Countries: Particularly, observe whether central banks of small countries start holding digital assets as an alternative to gold. This could be a significant trend in the coming period.

3. Cryptocurrency Usage in Third World Countries and Areas with High Inflation: Observe the daily use of cryptocurrencies by ordinary citizens, especially the younger generation. If the trend strengthens, there might be new challenges and risks related to regulation.

Economic Cycle

How is this cycle different from the previous one?

Compared to the previous cycle, there are some differences in the specific manifestations:

1. In this cycle, the speed of bubble elimination is faster, leading to the rapid bankruptcy of many companies and institutions.

Although there were numerous bankruptcies of US companies in every bear market cycle, the speed of bankruptcies in 2022 was faster, and the way the bubble was eliminated was different. Many companies were excessively optimistic in the previous bull market (the so-called eternal bull market), leading to a more aggressive mindset and a quicker burst of the bubble. This impacted institutions, causing many to go bankrupt rapidly. For practitioners, the past year has not been easy.

2. Additionally, this is the first time the crypto world has encountered an interest rate hike cycle. From the birth of Bitcoin until last year, it was an inflationary cycle. This is the first experience of the impact of macro interest rate hikes on the industry.

3. Personally, the last bear market did not feel as cold or desperate as previous bear market cycles.

As a co-founder of Cobo, what insights do you have on navigating the long winter of the bear market?

The key focus during the bear market is risk management and control. Specifically, it involves managing cash flow and being adequately prepared for Black Swan events, avoiding the mentality of a perpetual bull market.

DeFi vs. Traditional Finance

Is decentralized finance (DeFi) following an identical development cycle to traditional finance, or are there differences?

Fundamentally, yes.

DeFi rapidly replicated mature products from the past 200 years of the traditional financial market in a decentralized manner. It quickly iterated through these products on the blockchain using the composability of encrypted native assets for rapid trial and error.

How is DeFi different from traditional finance?

Compared to traditional finance, DeFi is much more efficient and purely transparent.

Efficiency means a faster iteration speed, roughly 50–100 times that of traditional finance. The modern financial history of the past 200 years mapped onto the crypto industry can be completed in two to three years.

Moreover, as DeFi is based on the blockchain, all its code is open source, acting like a transparent box. In contrast, traditional finance is a black box, and each company operates its own black box, making it challenging to understand how the entire financial system operates. DeFi is entirely transparent, and with time, anyone interested can understand its operational principles.

If DeFi has bubbles or issues, they will be exposed and burst more quickly, allowing for rapid trial and error.

Future Prospects: Promising Tracks and Trends

Which tracks and trends are you optimistic about in the future?

First and foremost is Layer 2. How to make Layer 2 run better, whether it’s Ethereum’s Layer 2 or Bitcoin’s Layer 2, is a core issue that we need to solve in the long term, making the chain better at providing underlying basic services while reducing costs.

Secondly, based on solutions like smart wallets, AA wallets, and MPC wallets, users can use blockchain technology assets and protocols at a lower threshold. Especially the combination of AA wallets and PassKey may be a problem that must be solved in the future.

Thirdly, looking further ahead, after solving the above two problems, the next stage of problems needs to be addressed.

I believe that in the end, the crypto industry may not see the expected scenario of widespread use of on-chain wallets. Instead, it might be AI, robots, and IoT devices that use these wallets. These devices will be associated with addresses holding digital currencies, authorized to use some assets, resulting in data exchange and obtaining human authorization to conduct some transactions. This stage is expected to be further in the future, and the development of AI and IoT depends on the development of the middle and lower-level infrastructure of blockchain, requiring time and cycles. I estimate it will take about 1–2 cycles to reach this stage.

In the next 5–10 years, these three tracks are what I am most concerned about.

What challenges do you think the future of cryptocurrencies will face? Or what challenges do you foresee in 2024?

Currently, the biggest challenges are twofold.

One is the outbreak of applications, highlighting the performance bottleneck of the chain, which will make everyone discover and solve problems.

This will be the main theme of the next cycle — solving scalability issues. The answer is evident: adopting Layer 2 networks, a lower-cost scalability solution. At the current stage, Layer 2 scalability is in the delivery phase, in the early stages of validation. The critical thing at this stage is market and route selection — specifically, who will take over the entire market.

In the next stage, with the infrastructure ready and performance optimized, we can expect large-scale application scenarios.

It is certain that large-scale application scenarios will come. What is uncertain is, “In the next stage, among so many application scenarios, which one will be the killer application?” and when it will emerge, “Can it start emerging in the next one or two years?”

Thoughts on the Revival of the Crypto Industry brought by Solana memes and the narrative of “Solana will flip Ethereum.” How do you view the DePIN narrative?

Although Solana has been significantly impacted by the FTX incident, the past year has given me the impression that there are people continually building on its ecosystem. Regarding the future development of the Solana ecosystem and whether it can flip Ethereum, I think we need to continue observing whether this trend will continue and if the Solana ecosystem can have better development.

Recently, the hype around the Solana ecosystem is mainly short-term price behavior, essentially normal market trading behavior. I won’t comment on this aspect.

As for the DePIN track, I am not so optimistic personally. Of course, if done well, it has value, but currently, it seems to be in the early stages.

If DePIN wants to land, it must create a network effect, which is challenging in the early stages. Whether it can form a certain network effect in the future remains to be seen.

Secondly, if a network effect is generated, and the scale expands, it will inevitably enter the regulatory field, leading to complex regulatory issues.

In summary, I think DePIN is currently in a more “meme” stage.

How likely is the possibility of multiple chains coexisting? Besides Ethereum, do you have confidence in other public chains or ecosystems?

Ethereum mainly revolves around Layer 2, including the iteration of scenarios for the landing of some applications. This is expected.

However, the performance of the Bitcoin ecosystem in this round has been somewhat surprising, especially the bottom-up drive and innovation occurring in this ecosystem. So, I might pay attention to some attempts and innovations in the Bitcoin ecosystem, hoping for breakthroughs and development in this market.

Why is there a focus on polishing the trading module in the next stage?

In my view, there are currently three types of users in DeFi.

The first type is asset management users, primarily using DeFi as a transparent asset management tool to gain transparent financial returns.

The second type of user provides liquidity for the underlying protocol’s trading functions, acting as a market maker for arbitrage. These users have a need — for efficient on-chain liquidity management.

The third type of user directly uses DeFi as a mature financial tool, mainly ordinary users focusing on trading and lending modules.

Our first module is basically targeted at DeFi asset management users, which was the original major demand for Cobo Argus.

With the expansion of asset management user volume and their Total Value Locked (TVL), users who provide liquidity for trading and arbitrage in DeFi, moving between centralized and decentralized systems, have begun to have a certain volume. They engage in arbitrage between centralized and decentralized systems. With this, there is a demand from these users — they need a better tool for on-chain liquidity management.

Please recommend a book that left a deep impression on you in the past year.

“Layered Money” is a relatively thin popular science book that can open up thinking and broaden horizons, providing a framework for predicting the future. The book mainly discusses the evolution of money and how encrypted currencies as a top-level currency will derive credit currencies. I strongly agree with the viewpoint in the book, believing that the future will develop in this direction.

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